Creating an association to manage waste was deemed internal reorganisation and not a public contract © People Images/Getty Images
Creating an association to manage waste was deemed internal reorganisation and not a public contract © People Images/Getty Images

A third way to share public contracts

20 February 2017

A recent ruling on waste management suggests a new, non-tender route for public-to-public contracting, explains James Clayton, senior associate, commercial and procurement, at Hill Dickinson.

When contracting authorities let public contracts to one another, until now there have only been two principal exceptions from having to apply the detailed letter of applicable public procurement law, including offering a competitive tender.

The first was to use the Teckal or ‘in-house award’ exception. This applies to contracts between a contracting authority and another entity that exists and operates so closely with, and is controlled to such an extent by that contracting authority that it can be classified as one of that contracting authority’s own departments.

The second was to use the Hamburg Waste exception. This applies to genuine inter-authority agreements that establish a co-operation between them for the performance of essential public services that they are mandated to perform. Co-operation must be governed only by consideration relating to public interest, as was the case when four German district administrations signed a contract with the City of Hamburg for waste disposal without a call for tender.

The third way

However, the judgment in the recent case of waste management firm Remondis versus the Region of Hannover and the city of Hannover has opened up a possible third way.

These contracting authorities delegated their waste management responsibility and powers to a special-purpose association created by themselves to take on this function. Remondis challenged that a public contract had been let in breach of the applicable public procurement regime since no competitive process had been conducted to select the provider.

The court, however, agreed with Hannover that there was no ‘public contract’ under which a paid service was being provided. The arrangement was purely a measure of internal state (re-)organisation as to how the performance of functions was to be achieved, and so the procurement rules did not need to be applied.

This decision could have significant importance for procurement professionals and their advisers. Whilst the specific conditions laid down in the Hannover case must be respected (particularly the need for full decision-making and financial autonomy to be transferred to the performing entity), it is possible that genuine delegation of functions arrangements (such as, for example, those implemented through section 101 of the Local Government Act 1972) could sit outside of the procurement rules thus being much simpler, quicker and cheaper to implement.

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