10 February, 2011
The Supreme Court yesterday ruled that public sector mutuals can operate outside the procurement rules. This decision in the Brent LBC and Others v Risk Management Partners Limited case overturns the previous Court of Appeal ruling.
The case is about RMP challenging Brent and other London Boroughs insuring themselves through a mutual body called London Authorities Mutual Limited. Brent and others contracted directly with LAML and abandoned tendering processes in which RMP was participating in order to do so.
RMP's case that the LBCs had no legal power to insure each other has now been addressed by a change in the law in 2009. That left open its allegation that the contract with LAML should have gone through competitive tendering.
The UK Public Contracts Regulations govern procurement and are based on EU Directives. Following the line of European Court cases starting with Teckal, developing in Asemfo and Coditel Brabant and ending most recently with the Commission v Germany (Hamburg Waste) case the Supreme Court ruled that the power of a local authority to do something for itself in-house extends to arrangements for authorities to share resources to achieve their objectives.
Two tests apply to any such arrangement: control must be of a sufficiently high degree for the public sector bodies to run the operation and the arrangement must be for the benefit of the public bodies concerned and not be out in the market competing with private businesses like RMP. As the Court rightly pointed out, in that case the public bodies would be taking work away from private competitors without allowing them in to tender for the public bodies' own business and that would be unfair.
LAML passed both tests and the principle is established in UK jurisprudence that public-public collaborations (such a those being pushed as a positive response to the Comprehensive Spending Review) can be operated without the private sector forcing them though tendering processes.
The tests necessary to do this will be applied strictly because this exemption is a way out of the usual rules and the internal constitution and rules of the mutual organisation will be scrutinised to see if it will in fact operate in the right way.
So from now on, before scratching each other's backs, public bodies will have to ask "are you Teckalish?"