Procurement in a nutshell – Teckal and Hamburg exemptions

The full regulations are available here.

To save you time and to help all practitioners, each week we will issue succinct notes on key changes.

Position under PCRs 2006
The Teckal case set out an exemption for contracts awarded by Contracting Authorities (CAs) to legal persons under their control that took these outside the application of the procurement rules.

It is often known as the in-house exemption.  Similarly, the Hamburg case set out an exemption for contracts involving co-operation between public sector bodies.

What’s New?

Teckal
Regulation 12 of the PCRs 2015 codifies and amends the Teckal exemption. The conditions for the exemption to apply are:

• CA exercises over the legal person concerned a control which is similar to that which it exercises over its own departments; (the control requirement);
• more than 80% of the activities of the controlled legal person are carried out in the performance of tasks entrusted to it by the controlling CA or by other legal persons controlled by that CA; (the activity requirement);
• there is no direct private capital participation in the controlled legal person with the exception of non-controlling and non-blocking forms of private capital participation required by national legislation provisions, in conformity with the Treaties, which do not exert a decisive influence on the controlled legal person.

Control is defined at Regulation 12(3) as meaning that the CA exercises a decisive influence over both strategic objectives and significant decisions of the controlled legal person.

Regulation 12(2) also has the effect that the Teckal exception can apply to an award of a contract by the controlled legal person where they are a CA and awarding their contract either to their parent CA or another legal person who is controlled by their parent CA.

Joint Control
Regulation 12(4) confirms the exemption also applies where two or more CAs jointly control a legal person provided the conditions in that regulation are met.

These are the same conditions as under regulation 12(1) applied jointly but under regulation 12(5) and in relation to the control requirement:

• decision-making bodies of the controlled legal person must include representatives from all participating CAs (although representatives can represent more than one CA under regulation 12(6));
• the CAs must be able to jointly exercise decisive influence over both strategic objectives and strategic decisions of the controlled legal person;
• the controlled legal person cannot pursue any interests which are contrary to those of the controlling CAs.

Hamburg
Under regulation 12(7), a contract concluded between two or more CAs will be exempt from application of the regulations where:

• the contract implements a co-operation between the participating CAs with the aim of ensuring that public services they have to perform are provided with a view to achieving objectives they have in common;
• the implementation of that co-operation is governed solely by considerations relating to the public interest; and
• the participating CAs perform on the open market less than 20% of the activities concerned by the co-operation.

Why is it important?
The codification of Teckal introduces two new key changes. The first is that indirect private capital participation is permitted, as is non-controlling and non-blocking forms of private capital participation where this is required by legislation and does not result in a loss of the CA’s decisive influence.

Also, the fixing of a percentage for the activity requirement is significant as it sets a clear threshold for CAs to follow in their application of the exemption and Teckal can still be of benefit to CAs where their controlled entities do up to 20% of their activities with or for third party organisations.

The codification of the Hamburg principles means CAs can now potentially rely on a statutory exemption to provide services to each other where the conditions are met.

How can I find out more?
If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.