Legal Update- Commission infringement proceedings against Sweden - Teckal Companies

A press release issued by the European Commission (the "Commission") on 29 October 2010  sets out reasons as to why it considers that Sweden has breached the EU public procurement rules by permitting several local authorities to award waste management contracts to "in-house" companies without conducting tendering procedures in accordance with the rules.

The Commission's concerns are that, as a result of this, citizens and businesses will suffer, as the fundamental principles of transparency and equal treatment which underpin EU public procurement policy have been ignored.

Background

The Swedish local authorities, Angelholm and Helsingborg, and Tomelillia and Simrishamn, (the "Authorities") awarded waste management contracts to companies that the Authorities co-owned with other authorities. In neither case was a call for tender published in OJEU, and no transparency procedures were launched by the Authorities prior to awarding the contracts. This in turn meant that "other interested companies from Sweden or elsewhere in the EU were precluded from participating in the contract award process" .

The fundamental rationale for the Commission's action is to protect the principle that "the open and transparent tendering procedures required under EU public procurement rules means more competition, stronger safeguards against corruption and better service and value for money for taxpayers" . It is apparent that the Commission considers that the actions of the Authorities in this instance have distorted competition.

Teckal¹ Implications

It appears that, in awarding contracts to companies they co-owned, the Authorities were attempting to "side-step" the EU public procurement rules by relying on the Teckal exemption.

The Teckal exemption states that authorities can only award contracts without conducting a procurement process if they are awarding such contracts to an "in-house" company. In order for a company to be classed as an "in-house" company, the following conditions must be met:

• The awarding authority must exercise over the company “a control which is similar to that which it exercises over its own departments”; and
• The company must carry out “the essential part of its activities with the controlling local authority or authorities”.

However, in this case, the Commission had received information that showed that the companies to which the contracts have been awarded by the Authorities are companies that are active in the private market and, further, that the companies themselves have a significant share in their turnover. Therefore, it has been held by the Commission that the Teckal conditions have not been satisfied.

Conclusion

In light of this alleged infringement and the Authorities failure to satisfy the Teckal requirements, the Commission issued a letter of formal notice to Sweden in January 2010. Sweden failed to provide a satisfactory response to this and so the Commission has taken this case to the next stage of the formal infringement procedure by issuing a reasoned opinion to Sweden, to which it has two months to respond. If no satisfactory response is received within the timeframe the Commission may refer this matter to the ECJ, at which time it will be interesting to see the ramifications such a hearing will have for all Member States and how this will impact on the UK's developing shared services and outsourcing agenda.

1. Case C-107/98- Teckal Srl v Comune di Viano