Contract or co-operation – what’s the difference?

An age-old question for all of us in the procurement field is around the extent to which two public bodies are permitted to work together without attracting the application of the procurement rules. We expect the new Directive on public procurement (see later in this edition) to provide a new legislative framework in this area. Until then, we look to case law for guidance on what’s permissible.

A recent case sheds some interesting light. In December, the European Court heard Case C-159/11 Azienda Sanitaria Locale di Lecce v Ordine Degli Ingegneri della Provincia di Lecce et al. In this case, a local health unit (ASL) and the University of Salento signed a contract under which they would run a study into the vulnerability or otherwise of hospital buildings to seismic activity. The amount paid under the contract did not exceed the costs incurred by the supplier university in providing the services. The Order of Engineers of the Province of Lecce and others objected to this direct award, arguing that the contract should have been fully tendered under the public procurement regime.

The Court of Justice noted that a public services contract can exist between two contracting authorities, provided that the services are within the scope of the Directive and the contract is for pecuniary interest. It held that this contract was indeed for pecuniary interest, even though the amount paid only covered the supplier university’s costs.

The Court noted that the “Teckal” exemption for in-house contracts was not available, as ASL did not exercise the necessary degree of control over the university for that exemption to apply. The Court also looked at the test in the Commission v Germany case which established that, where two public bodies are genuinely co-operating in the performance of a joint public task; where the implementation of the co-operation is governed solely be considerations in the public interest; and no private provider is placed in an advantageous position compared with its competitors, the contract between them will not be subject to the procurement law regime.

Even though the consideration payable to the university did not exceed the costs incurred in providing the service, the Court decided that the Commission v Germany test was not satisfied here. The work to be done under the contract would normally be done by engineers and architects and was not one of the University’s public functions. This was not a case where ASL and the University were co-operating to fulfil a public task they were both required to perform. As such, the Court of Justice held that the contract was indeed one which should have been made the subject of a full procurement process, despite the fact that Italian law permitted these types of contract to be entered into outside of the procurement law regime.

This case sheds further light on the limitations of the “co-operation” exemption under the public procurement regime, and in particular when the requirement for performance of joint public task will not be met. It also shows that all the requirements in Commission v Germany must be met before the exemption can apply, and that this is the case whether or not the contract is non-profit making.