European Courts challenge in-house contracts

The European Courts have made a number of recent decisions challenging the ability of public bodies to award contracts to "in-house" providers without a competition. Service providers should therefore be aware of the opportunities these rulings provide for exerting pressure on public bodies to open up the provision of services to competitive tender.

• In Teckal a group of local authorities had set up a consortium to manage energy and environmental services. The European Court of Justice (ECJ) held that in principle the individual local authorities could not award contracts for such services to the consortium without there first being a competition open to external providers.
• In Stadt Halle a local authority had formed a joint venture company with a private sector partner to provide waste management services. The local authority held the majority of shares in the joint venture. The ECJ held that the local authority could not award a waste management contract to the joint venture without there first being an open tender process.
• In Parking Brixen a local authority had set up a private company to carry out the management of various local public services. The company was 100% owned by the local authority. In addition to its public service roles it also carried out some activities in the private sector. The ECJ held that even though the company was 100% owned by the authority contracts could not be awarded to it without competition because of the fact that the company also carried out activities in the private sector.

In addition to these cases there have also been a number of recent decisions where the ECJ has stated that even where a local authority is not required to competitively tender a contract as a result of the procurement rules, the application of EC Treaty principles at least requires it to advertise the services it requires.

These legal developments are therefore making it increasingly difficult for public bodies to award contracts to in-house providers without a public tender process. This should provide ammunition for service providers frustrated by a public body’s reluctance to use an external provider.