Public procurement news – what does the LAML judgement mean?

A recent case was good news for local authorities and other public bodies wanting to use shared service type operations; they may not have to run full 'EU' competitions in order to give business to the such organisations.  (With thanks to CMS Cameron McKenna for their reporting on this).

The LAML case centered on whether the EU Contracts Regulations 2006 applied to a local government shared service vehicle. In 2006 and 2007 various London local authorities set up a shared service vehicle called the London Authorities Mutual Limited (LAML) to provide insurance services. Authorities wanted to give their business to LAML without going through a full competitive process; an external insurance firm objected, and the Courts initially found against the Authorities.

But the UK Supreme Court concluded that the local authorities involved could give business to LAML without going through external competition, because LAML was fully under the control of the group of local authorities. It didn’t matter that there was more than one authority involved; or indeed that insurance was a service that each individual authority could not have provided for itself.

The regulations are "not intended to protect the commercial sector by forcing public authorities to obtain the services which they need on the commercial market. Rather, its purpose is to ensure that, if public authorities do decide to obtain the services which they need from outside bodies, proper procedures are followed to ensure that potential providers have an opportunity to compete for the work". (CMS)

So you don’t have to compete stuff if there is a public sector option; but if you do compete you better do it properly. In terms of the wider meaning of this, basically the EU Directives don't apply when a contracting authority is trading with another entity that is fully controlled by the public sector and is not market facing.

One other point though; my interpretation is that this would be different if the body you want to contract with operates in the commercial sector (even if it’s under public sector ownership).  In that case, normal regulations will apply. The Court made the point that LAML was ‘not market-orientated’ and ‘no private interests whatsoever were involved’. That issue may become more relevant if we get into a new world of more 'mutuals' and similar organisations that straddle public and private sector.

Voices (4)

  1. Dan:

    The test was basically “does the organisation have the same level of control over the contracting organisation as it does over its own departments?” Since all central government departments are just that – departments – this is not a problem. Local authorities, on the other hand, are (nominally) independant.

    As only one of a number of councils that set up LAML, the Court of Appeal decided that it could not satisfy that test, especially since LAML had its own board that was responsible to LAML alone.

    The Supreme Court has now widened the definition of ‘control’ significantly.

    One problem with setting up shared services is now gone, only another gazillion to go!

  2. R:

    So how can one major Central Government Department give its entire Shared Services portfolio to another CGD without competition? Ah, presumably, because they’re all under the ultimate ‘control’ of Cabinet Office (the Civil Service) and Treasury, whereas, in wider government, such as Local Gov, they’re under individual accountable/governance arrangements. It is a significant development though – councils can set up their own shared services, for as long as they continue to pass the control test….

  3. Dan:

    “So you don’t have to compete stuff if there is a public sector option; but if you do compete you better do it properly. In terms of the wider meaning of this, basically the EU Directives don’t apply when a contracting authority is trading with another entity that is fully controlled by the public sector and is not market facing”

    Not true – you don’t have to go out to tender if you can award it to a public sector organisation, BUT that organisation has to be under the control of your organisation, NOT the public sector generally. This decision by the Supreme Court was about the level of control needed to satisfy the test.

    The Court of Appeal decided that LAML wasn’t under the control of Brent Council as it was only one of a number of councils that owned LAML, and that it couldn’t influence the day-to-day decisions.

    The Supreme Court decided this wasn’t a factor, and the fact that Brent had influence over LAML’s strategy and policy counted as ‘control’ for the purposes of the test.

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