Procurement - Is there a 'Third Way' for Contracting Authorities alongside Teckal and Hamburg?

Wednesday, 11th January 2017

The Advocate General (the "AG") of the Court of Justice of the European Union (the "CJEU") has finally handed down his preliminary opinion on the Remondis case. This opinion indicates that there could soon be a 'third way' for contracting authorities to remove the need for a procurement process when directly awarding contracts to certain organisations for the purpose of providing public services.

The current position

The Public Contracts Regulations 2015 (the "PCR 2015") has the potential to restrict contracting authorities from awarding a contract to an organisation established by that authority (or several contracting authorities) or from working with other contracting authorities to achieve a goal. This is because the PCR 2015 requires contracting authorities to go through a legally complex and time consuming procurement process when awarding contracts.

There are currently two exemptions which give greater flexibility for contracting authorities:

The Teckal Exemption

The Teckal exemption applies where contracting authorities award contracts to an 'in-house' provider, provided that:

i.  The contracting authority (or contracting authorities) exercises control over the legal person similar to the control it exercises over its own departments;

ii.  More than 80% of the activities undertaken by the legal person relate to the performance of tasks given to it by the contracting authority (or contracting authorities); and

iii.  The contracting authority (or contracting authorities) must have a decisive influence over the legal person, which is not limited by any private financial investment.

The Hamburg Exemption

The Hamburg exemption applies where two or more public authorities contract together. A contract concluded exclusively between contracting authorities will be exempt from the PCR 2015 if:

i.  Ihe contract establishes co-operation with the aim of ensuring that public services they have to perform are provided with a view of achieving objectives they have in common;

ii.  The implementation of that co-operation is governed solely by the public interest; and

iii.  The participating authorities perform on the open market less than 20% of the activities concerned by the co-operation.

Remondis: A 'Third Way'?

The AG's preliminary opinion concerned a dispute between Remondis, a waste management company, and the German Region of Hannover. The dispute concerned the lawfulness of the transfer of waste treatment tasks to a special purpose association created by the Region of Hannover and the City of Hannover. Remondis argued that this decision constituted the award of a public contract and was therefore subject to the European Union rules on public procurement.

The AG proposed that an agreement between two authorities to form a separate entity, to which they transfer powers to perform public services without providing for remuneration, should not fall within public procurement rules if it satisfied the following three part test:

  1. The transfer of powers should be comprehensive, allowing the entity to perform the transferred public tasks fully and autonomously. The transferring authority must relinquish the powers it has transferred;
  2. The entity to which powers are transferred must be able to carry out the task for which powers were transferred in full autonomy . There may only be a relationship of 'political control' where the transferred task is a public service, which allows the authority to exercise its political responsibility for the performance of the task; and
  3. The entity must have financial autonomy in the performance of the public service. It must have the necessary resources fully allocated to it by the authority, or other involved authorities, as part of the transfer.

This test forms part of a preliminary opinion only, meaning that the CJEU has not yet ruled on the issue. If they do adopt the AG's proposals, then the CJEU judgement should apply to similar arrangements between contracting authorities. Such a judgement has the potential to open the door to a 'third way' for contracting authorities to organise the delivery of public services.

This article was written by Elizabeth Gibson and Rose Ashwood.

Key Contact

Elizabeth Gibson

Partner and Head of Public Sector

[javascript protected email address]
+44 (0)1392 333802


Get in touch

Please complete the form and we will get back to you as soon as possible.

Thank you for your enquiry. One of our team members will be in contact with you shortly.