Public procurement law has previously acknowledged two so-called ‘public to public exceptions to the application of the Public Contracts Regulations 2015 (PCR 2015) to otherwise fully procurable contracts. The first is the ‘Teckal’ or ‘in-house award exception for contracts let between a contracting authority (or authorities) and a subsidiary organisation. The second is the ‘Hamburg Waste’ exception relating to genuine inter-authority co-operation agreements.

However, a ruling of the European Court of Justice (ECJ) handed down on 21 December 2016 in the case of Remondis GmbH & Co –v- the Region of Hannover, Germany and others (C-51/15), appears to have created a potential third way of exempting agreements between public bodies from the full application of the PCR 2015 or their equivalent within the EU.

The Region of Hannover and the City of Hannover (as contracting authorities) both held responsibility for waste disposal and treatment in their local areas. They agreed to delegate waste management responsibility and powers to a special-purpose association (i.e. separate legal entity) for waste management created by statute by these contracting authorities.

Remondis had challenged this transfer on the basis that the special purpose association to which the tasks had been delegated had not been identified through any form of competitive selection process. Remondis therefore alleged that a public contract had been let in breach of the applicable public procurement regime.

Hannover asserted that the special purpose association fell outside of the scope of public procurement law on the basis that its creation and the subsequent transfer of functions was done via statutory instrument and not through a public contract under which remuneration for a service was being paid. This was purely a measure of internal state (re-)organisation as to how the performance of functions was to be achieved.

The ECJ was persuaded by Hannover’s arguments and sided with the contracting authorities in its conclusions. It stated that:

‘An agreement concluded by two regional authorities, such as that at issue in the main proceedings, on the basis of which they adopt constituent statutes forming a special-purpose association with legal personality governed by public law and transfer to that new public entity certain competences previously held by those authorities and henceforth belonging to that special-purpose association, does not constitute a “public contract”.

‘However, such a transfer of competences concerning the performance of public tasks exists only if it concerns both the responsibilities associated with the transferred competence and the powers that are the corollary thereof, so that the newly competent public authority has decision-making and financial autonomy, which it is for the referring court to verify.’

In other words, the ECJ found that an arrangement implemented by a contracting authority (or authorities) which constituted a genuine delegation of functions (as opposed to a remunerated provision of services) would not be a procurable public contract. The delegation in question must be complete, giving the recipient full control over how the function in question is to be performed but in such cases, direct appointments may be permissible.

It is perhaps possible to see how this could have direct application in a local government context within a section 101 Local Government Act 1972 delegation of functions situation, for example. Whilst the Hannover case conditions will still need to be respected moving forward, this new case provides a legal basis for a potential ‘third way’ in which contracting authorities could procure goods, works or services without a need for full application of the PCR 2015.