Learning when to share

Although sharing is a laudable exercise, in this article Edward Quigg, Director at Quigg Golden, looks at when sharing in the public sector may fall foul of procurement law.

Over recent years Northern Ireland public bodies and local authorities have capitalised on the benefits of sharing their in-house services. Collaborative arrangements between public authorities and the sharing of in-house services has made economic sense in times of austerity.

However, in sharing services, public authorities need to be careful that they are not breaching procurement law and potentially face challenges from disgruntled private sector providers. What public bodies must understand is the difference between service co-operation within and between public authorities and awarding contracts that should be subject to the procurement rules.

As a general rule, public authorities are bound to run open and transparent procurement processes for all services. This is the law. However, the example below demonstrates how public authorities, namely local Councils, can vertically and horizontally share their in-house services and not fall foul of procurement rules.

Say, for example, Council A wishes to set up a parks maintenance company: Parks Inc. This company is publicly owned and is to provide parks maintenance for all of Council A. Council A exercises similar control over Parks Inc as it does with any of its direct employees and direct labour/service providers. There is no issue with Council A doing this from a procurement law perspective. However, Council B CANNOT avail of Parks Inc without running a procurement process in order to secure such services UNLESS Council A and Council B can prove:

1. Council B will exercise the same legal control over Parks Inc as it does over its own departments (i.e. have the same control as Council A);

2. 80 per cent of the activities of Parks Inc are carried out in performance of the maintenance of parks owned by Council A and Council B, and nothing else; and,

3. there is no direct participation in Parks Inc.

By way of another example, if Council A wishes to create Parks Inc. as above, Council A CANNOT go to Council B and require payment of a start up fee from Council B in order to for Parks Inc. to maintain Council B’s parks. The two Councils can however collaborate, and share the services of Parks Inc as if it was internal to both Council A and Council B.

In order to do this, both Councils must demonstrate that:

1. the contract between the Councils ensure that the services provided by Park Inc are common to both Councils;

2. this co-operation is solely for the public interest; and,

3. Parks Inc cannot perform 20 per cent or more of its activities in the open market.

These exceptions where developed by the European Court of Justice in the rulings of the Teckal and Hamburg cases. The new EU Directive and Draft UK Regulations have now codified this position into law, namely Regulations 12(1) and 12(4) of both pieces of legislation.

Public Authorities need to be aware that the Procurement Regulations may apply when dealing with joint purchasing and sharing services. It can be done and the procurement rules can be set aside in certain situations, but in others it cannot and the authority providing the services will have to compete with others on the open market.

Public Sector Authorities must always ask themselves whether or not they are actually allowed, by procurement law, to share services or award a contract to a subsidiary or other authority without running a procurement. There are situations where this is allowed, but they are the exceptions.

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