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Jill Fryer: Remondis – court develops new principle for outsourcing without a procurement process

Monday January 16th, 2017

Efficient service delivery continues to be a significant challenge for many public bodies, faced as they are with a number of economic, social and political difficulties. As if these difficulties were not enough, public bodies are also required to comply with the public procurement rules, which impose stringent requirements on how they can enter into contracts with third parties when it comes to outsourcing service delivery.  jill-fryer_hd-2

In these challenging times, public bodies are increasingly looking for innovative ways to efficiently achieve their strategic aims while minimising the associated bureaucracy and compliance risks.

Two existing principles – Teckal and Hamburg Waste

In terms of collaboration with other public bodies, there are already two principles which can be relied upon to avoid the requirement for a procurement procedure. Although both have now been codified in legislation, they are often still referred to as the Teckal and Hamburg Waste principles. The Teckal principle essentially sets out the circumstances in which a public body can directly award a contract (without competition) to a company which it controls. The Hamburg Waste principle can be a legitimate basis for ‘shared services’ contracts, where a public body wishes to receive services from another public body in relation to achieving objectives they have in common.

Remondis – a new principle of ‘outsourcing’

Just before Christmas, the European Court issued a judgment in the Remondis case, which developed a third principle which can be relied on by public bodies wishing to ‘outsource’ without the requirement for a procurement procedure.

In essence, if the public body wishes to transfer its competence for the provision of a service for which it is responsible, along with its powers in relation to that service provision, there will be no ‘public contract’ and so no requirement for a procurement procedure. Crucially, the body to which powers are transferred must have decision-making and financial autonomy.

What will it mean in practice?

Before relying on this principle, a public body’s ability to delegate will require careful consideration.  As well as legal considerations, there are many practical, commercial and political issues to address in terms of whether such concession of control would be acceptable.

Given the drive for more innovative and efficient service provision, the principle developed in this case may prove useful but should be used with caution to ensure that it will actually allow the public body to achieve its overall strategic objectives.

Remondis GmbH & Co. KG Region Nord v Region Hannover and others (Case C-51/15, 21 December 2016)

Jill is an Associate with Harper Macleod LLP and can be contacted at jill.fryer@harpermacleod.co.uk

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