Are you opening yourself up to a challenge in breach of the Teckal rules?

For contracting authorities seeking to rely on the so-called "Teckal" exemption for the direct award of public contracts (Case C 1999/562), recent case law has highlighted the importance of ensuring you fully fall within the "Teckal" exemption before you make the direct award. A decision was made in the case of Technische Universität Hamburg-Harburg v Datenlotsen Informationssysteme GmbH. Case C-15/13 on 8 May 2014 that confirms the interpretation of horizontal in-house transactions should be construed narrowly.

The conditions that need to be satisfied to make a direct award in reliance of the "Teckal" exemption have been developed through case law. The current position is that it is not mandatory for a call for tenders where the contracting authority exercises over the supplier a control which is:

1. Similar to that which it exercises over its own departments ("Similar Control"); and
2. Where the supplier carries out the essential part of its activities with the controlling contracting authority.

In this case before the Court, Hamburg University awarded a direct award to Hochschul-Informations-System ("HIS"), stating it was entitled to do so as it was a body governed by public law and HIS was a limited company owned by the Federal Republic of Germany and the 16 German States (with the City of Hamburg having a 4.16% ownership). The supervisory board of HIS was made up of 10 elected members, 7 of which were appointed by the Conference of Ministers of the Lander, 2 from the Conference of Rectors and the last by the Federal authorities.

Hamburg University and HIS argued that as both entities were owned by the City of Hamburg the condition of Similar Control was satisfied, whereas Datenlotsen Informationssysteme ("DIS") argued that Similar Control was not established as Hamburg University was unable to exercise control over HIS similar to that which it exercised over its own departments, nor could an "indirect control" be established as the City of Hamburg did not maintain a permanent representative on the supervisory board of HIS.

The German national court held that Hamburg University was unable to show that the condition of Similar Control was satisfied in this case as it was unlikely that Hamburg University would have similar control over HIS as over its departments. However the German National Court referred the following question to the European Court of Justice ("ECJ"): Must Article 1(2)a of Directive 2004/18 be interpreted as meaning that a contract for the supply of products between (1) a university which is a contracting authority and whose purchases of products are controlled by a German Federal State, and (ii) an undertaking under private law, owned by the Federation and by Federal States, including the above mentioned Federal State, constitute a public contract?

ECJ responded by clarifying that the meaning of Similar Control should require the contracting authority to have a power to exercise "decisive influence over both the strategic objectives and the significant decisions of the contractor, and that the control exercised by the contracting authority must be genuine, structural and functional."

ECJ therefore held that as Hamburg University has no relationship of control over HIS there cannot be held to be any Similar Control. Furthermore, the Court held that the City of Hamburg was not in a position to exercise Similar Control over Hamburg University as it does not control all aspects of all the University's activities and the application of the Teckal exemption for direct awards shall continue to be interpreted in a narrow sense.

This case has further highlighted the importance for all contracting authorities seeking to rely on the "Teckal" exemption to ensure prior to making the direct award that they do fully satisfy the "Similar Control" condition as well as the supplier carrying out the essential part of its activities for the contracting authority.

If you need assistance with establishing this, please contact one of our team who would be happy to assist.