LAML, ALMOs and Teckal
At long last the public sector within the UK has been given something to cheer about.
Following what seemed like an eternity since any goods news, the public sector last month breathed a collective sigh of relief. It was palpable. Public sector bodies were still celebrating the earlier qualified successes of the Indigo and Exel judgements that brought 2010 to a close (see earlier articles), when, in February 2011 the icing on the cake was delivered courtesy of the Supreme Court.
The Supreme Court decision brought to a close (no further guidance needs to be sought from the Court of Justice of the European Union), the long running saga between Brent London Borough Council & Others and Risk Management Partners Limited [2011] UKSC 7; the case also known as LAML. Lord Hope delivered the leading judgement of the Court and hope is what their Lordships delivered.
It had been a long awaited decision and will be welcomed by all authorities with "quasi in house departments" such as ALMOs. The Court of Appeal decision in LAML back in 2009 was seen as applying the brake sharply to the aspirations of many local authorities. It was seen as curtailing what many believed was the runaway use of "wellbeing" powers by local authorities and the use of "corporate vehicles" that, from a procurement perspective could best be described as "borderline".
Now, it's fair to say that by the time of the Supreme Court judgement in February 2011 we were looking at a completely different landscape. The introduction of the Local Democracy, Economic Development and Construction Act 2009 quite emphatically addressed the vires issue. Also, Brent had settled their differences with RMP so, with just Harrow still left as an interested party the Supreme Court was able to focus their attention on issues concerning the application of public procurement regulations and specifically, the Teckal exemption. But it is the manner in which the Supreme Court tackled those issues that will, perhaps, have the greatest impact.
Gone are the troublesome nuances about application of the Regulations, collective control, and sufficiency of control and function tests that so vexed the Court of Appeal and High Court before it. Looking back, a common theme permeates both the High Court and Court of Appeal judgements that can be summed up as; "support for a restrictive interpretation of the Teckal exemption" as per Pill L.J in the Court of Appeal, who also noted; "The derogation from the Directive must be interpreted strictly", before going on to say; "I detect no weakening in the requirements necessary for the application of the exemption".
Some say lawyers are taught to be cautious but the restrictive interpretation and strict application of the exception had been a prominent feature in Teckal itself and every case since. Moore Bick LJ in the Court of Appeal very succinctly identified the cause of so much confusion by saying; "The fact is that the Teckal exception embodies a legal fiction in as much as it treats what is in law a separate legal person as if it were nothing more than an emanation of the contracting authority". He went on to say that produced two consequences, so that the authority and the contractor were regarded as one and the same person and that what in the ordinary way would be regarded as a contract is ignored for the purposes of the Directive.
It is these conflicts thrown up between company law and competition law and any attempt to reconcile these with the procurement regulations and the Teckal exemption that has been so frustrating.
Fast forward to February 2011 and the fog embracing the Supreme Court in London has been miraculously lifted with Lord Hope concluding (at paragraph 52); "there is now a much clearer focus on the purpose of the Community rules on public procurement so as not to inhibit public authorities from co-operating with other public authorities for the purpose of carrying out some of their public service tasks". According to Lord Hope this shows how far we have travelled since the court issued its judgement in Teckal.
It does indeed appear that we have travelled a considerable way and the Teckal judgement has shown itself to be a veritable Pandora's Box along the way. It is questionable whether the ECJ really did intend to create a blueprint for avoiding the procurement directive but there we have it.
When is a contract not a contract? When applied to European procurement regulations, of course.
Collective control by a number of authorities is sufficient. EU procurement regulations will treat the controlling group as if it were a single authority. We will simply ignore any conflicting or competing concerns of individual authorities.
Collective or sole control, as long as it is real control with no private interests in the company, and all work being done to further the public authority's public duty by "a captive contractor" will invariably be enough to satisfy the Teckal requirements.
As Lord Hope says; "there is no doubt that the case law on the Teckal exemption has become progressively clearer as the European Court has developed its jurisprudence on public procurement and has placed a growing emphasis on the underlying rationale".
This is from the highest court in the UK and no public authority could be criticised for following the judgement.
Allan J. Donovan © 2011
Allandon Services Limited
