While informal joint working or joint appointments will usually fall outside the Regulations (because there is no contract for services), bear in mind that arrangements may initially be informal but may evolve over time into more definite structures to which the Regulations may apply.
The other two key models which are not caught by the Regulations are where:
- services are provided by an in-house or “Teckal” company; and
- the arrangement can be viewed as co-operation between public bodies in relation to a public task which they each have an obligation to perform.
We look at the structure and legal test for both of these models below: The in-house or Teckal company
Here a contracting authority/contracting authorities can avoid the procurement regime by establishing a “Teckal” company to provide the services (named after the case which first established the exemption).
At present, the legal test for “Teckal” has two limbs:
- The “control test”: the contracting authorities must exercise [joint] control over NewCo similar to that which they exercise over their own departments. This means they have the power to exert decisive influence over strategic objectives and significant decisions of NewCo. Importantly, NewCo cannot include any private sector capital or interest; and
- The “essential part test”: NewCo must carry out the "essential part" of its activities with the controlling contracting authorities. Other activities are of only “marginal” significance. NewCo is not market orientated.
This structure will be unsuitable for more complex shared services arrangements designed for commercial exploitation (as no private sector investment/ownership is permitted or and any significant business with third party customers). However, for simpler structures, it provides a useful model. The “co-operation” in a public task model
Another EU procurement case, Hamburg, established that genuine co-operation between public bodies to jointly fulfil a public task which they each have a duty to perform, will also fall outside of the procurement regime. Currently, to meet the test the “contract”:
- must be concluded in a framework of genuine cooperation between the participating contracting authorities: aimed at carrying out jointly their public service tasks (ie, different in character to a contract for services);
- involves co-operation only between public entities;
- is non-commercial in character (no profit is generated and only reimbursement of actual costs); and
- is governed solely by considerations and requirements relating to the pursuit of objectives in the public interest and is of little or no interest to a private sector supplier.
As with Teckal, this exemption will not assist where contracting authorities wish to use the shared services vehicle for commercial exploitation.