Green light for mutual co-operation

Simon Taylor believes the Supreme Court ruling on LAML has paved the way for public organisations to pool their resources and deliver services more efficiently, and at a lower cost The UK Supreme Court delivered a unanimous ruling in Brent LBC and others (Harrow LBC) v Risk Management Partners Limited [2011] UKSC on 9 February. The law lords overruled the Court of Appeal and held that, in establishing London Authorities Mutual Limited (LAML) to meet their insurance needs, Brent LBC and other London boroughs did not infringe public procurement law. This ruling acknowledges the direction that European Union case law has taken since the judgement of the Court of Justice in the European Union (CJEU) of July 1999 in Teckal (C-107/98) on the ‘in-house exemption'. Teckal established the rule that where a public authority enters into a service contract with a provider over which it exercises decisive control and which provides the essential part of its services back to the parent body, this contract is not subject to the procurement rules. Simon Taylor believes the Supreme Court ruling on LAML has paved the way for public organisations to pool their resources and deliver services more efficiently, and at a lower cost This has been expanded in subsequent case law to cover services provided by ‘shared service' bodies controlled collectively by public bodies. The key issue in the LAML case was whether the degree of control exercised over the jointly-owned body was sufficiently decisive for the insurance service contracts between LAML and the London boroughs to be considered in-house. The Court of Appeal said that it wasn't. The Supreme Court disagreed. There are two clear messages which may be taken from the Supreme Court's ruling. First, EU public procurement law allows public authorities to co-operate with other public authorities for the purposes of carrying out their public service tasks, and this does not have to follow any particular legal form. This co-operation will be within the Teckal exemption provided that: no private interests are involved the public authorities are acting solely in the public interest in the carrying out of public service tasks they are not contriving to circumvent the public procurement rules. Second, the collective exercise of decisive influence over a shared-service body is generally established where the authorities together hold all of the share capital in that body. The Supreme Court ruled that voting rights of the LAML membership and special resolution procedures under UK company law were sufficient to give the members collective control over strategic matters. Given also that the services provided were exclusively for the performance of public functions, and no private interests whatever were involved, the Teckal test was satisfied. So what then are the wider implications of the Supreme Court ruling? At a time of public sector spending cuts, the court's verdict is a break. It should help public bodies – local authorities, housing associations, NHS entities and central government – to pool resources, with a view to delivering public services more efficiently and at lower cost. Public procurement law is based on European Union law rules designed to ensure there is no discrimination in public purchasing on grounds of nationality – and ensure fair competition on the EU common market. The ruling appears to confirm that non-commercial co-operation between public authorities is immune from these rules, as it does not affect competition in the market. But what does this mean? When is the offer by one public body to provide public services to another solely in the public interest and non-commercial? Is it sufficient for it to be provided ‘at cost – any revenue will deliver a return for the provider if it has fixed costs and spare capacity? The key to the LAML ruling is that it is about co-operation between public bodies. That implies the use of each other's resources, rather than one public provider offering its services to others – potentially in competition with a range of market providers. The pooling of resources to achieve mutual cost efficiencies – typically between geographically-proximate bodies such as local authorities or hospitals and involving specialisation – fits most comfortably within the exemption. The ruling also means that where a more formal shared service vehicle structure is to be used, public authorities can enter into such arrangements with greater confidence. After the Court of Appeal ruling in LAML, there was unease that UK limited liability companies were unsuitable shared-service vehicles, given the independence of boards under UK company law. This concern no longer arises following the Supreme Court ruling. As a final cautionary note, the ruling does not change the position that where private interests are involved, the Teckal exemption is unlikely to apply. The shared service entity can, of course, go out to tender to appoint a service provider under procurement law. However, if the public bodies recruit the expertise of a particular private sector partner – for example, in return for equity in the shared service entity – then this will take the arrangement outside the exemption. Simon Taylor is a partner in Wragge & Co's public procurement team

Title

WHITEHALL

Green light for mutual co-operation

SUBSCRIBE TO CONTINUE READING