After a four year battle for a definitive approach to local authorities’ collective procurement, Harrow London Borough Council has finally got its answer from the courts - and it’s a positive one.
Harrow LBC [Brent LBC and LAML] v Risk Management Partners Ltd is a landmark Supreme Court judgement that reversed the rulings of the High Court and Court of Appeal before it. The ruling confirmed the extent to which public sector bodies need comply with EU Directives and Regulations when placing contracts for goods and services, and held that LAML was exempt from these regulations.
The unanimous judgment ruled that a contract does not need to go out to tender if it is with an entity which is owned by the authority or a collection of authorities and concerned only with delivering services to the local authority members - notwithstanding the Public Contract Regulations 2006.
By way of background, Harrow London Borough, acting in collaboration with a number of other local authorities, had established and capitalised a mutual insurance company (LAML) to reduce the cost of the authorities’ insurance premiums and to pool risk management strategies. Harrow then awarded insurance contracts to the newly formed mutual without running any procurement exercise.
The respondent, Risk Management Partners (RMP), brought proceedings against Brent LBC, one of the other founder authorities, to which Harrow was joined. RMP contended, among other things, that the mutual constituted a breach of the Public Contract Regulations 2006 that require that large contracts for goods or services should be subject to competitive tender.
The High Court and Court of Appeal found in favour of RMP in 2009. Shortly before the case came before the Supreme Court, Brent settled with RMP leaving Harrow to forge ahead.
Harrow LBC contended that the arrangements with LAML fell outwith the Regulations due to the Teckal exemption, established by the EU case of Teckal srl v. Comune di Viano and Azienda Gas-Acqua Consorziale (AGAC) di Reggio Emilia heard in the European Court of Justice in 1999, and several subsequent ECJ cases which supported Harrow’s position. The Teckal exemption means that in specific circumstances, a public body can award a contract to another entity without having to run a procurement exercise. The entity has to be controlled by the public body, without private sector involvement, and carry out the essential part of its activities with the public body.
The Supreme Court considered whether the UK procurement regulations were subject to the Teckal exemption at all, whether it applied to an insurance arrangement, whether the legal tests were met in this case and, crucially, whether an authority would need to exercise control over the separate entity by itself or whether collective control was sufficient. This is important where local authorities collaborate through a joint venture, because none of them will be able to exercise decisive control on its own, and because they will at times be dealing with the joint venture at arms length.
Harrow contended that Teckal permitted local authorities cooperating to provide themselves with insurance coverage to exclude themselves from the obligations conferred by the EU Procurement Directive and the Public Contract Regulations 2006. The High Court and the Court of Appeal held that the Teckal exemption did apply to the UK procurement regulations but that the LAML arrangement had failed to pass the control test. The Supreme Court disagreed with this view unanimously agreeing that the arrangement did satisfy the Teckal test.
At a time when local authorities are struggling to implement government spending cuts, and need to look at ways to save money fast, this judgment offers offers authorities the opportunity to avoid running costly and time consuming procurement exercises to deliver their services. It is particularly relevant in the context of shared services arrangements.
Michael Green is a partner at law firm Weightmans LLP and represented Harrow LBC and LAML throughout the case.