The Supreme Court handed down its judgment in the case of Risk Management Partners Ltd v Brent London Borough Council [2011] UKSC 7 on 9 February 2011. The case concerns the scope of the Teckal exemption in public procurement law, that is, whether a local authority was entitled to enter into contracts of insurance with a mutual insurer established in co-operation with other local authorities, without first putting those contracts out to tender in accordance with the Public Contracts Regulations 2006 (“the Regulations”).

In 2006 and 2007 various London local authorities, including the respondent, co-operated and entered arrangements for mutual insurance in order to reduce the costs of insurance premiums by removing the element of profit built into an ordinary commercial insurance premium, and to increase the standard of risk management. London Authorities Mutual Limited (“LAML”) was thus established. Brent LBC contracted for LAML to provide it insurance but did not conduct a tendering process for the award of the contract of insurance. Risk Management Partners (RMP), a commercial insurer claimed that there should have been such a tendering process complying with the Regulations and that had one been carried out it might have been successful. Although that claim had since been settled, the Court sought to determine other damages claims against various other London authorities and to clarify the law.

The Regulations give effect to Council Directive 2004/18 and apply whenever a contracting authority seeks offers in relation to the award of certain public contracts. In Teckal Srl v Comune de Viano and Azienda Gas-Acqua Consorziate (AGAC) de Reggio Emilia (Case C-107/98), the European Court of Justice held that in certain circumstances, the award of a contract by one public body to another separate legal person will not fall within the definition of “public contract” in the Directive, where the local authority exercises control over the body to whom the contract is proposed to be awarded (the “control test”); and that body must carry out the essential part of its activities with the controlling local authority (the “function test”).

The case therefore concerned three questions. Did the Teckal exemption apply to the UK Regulations? Did the Teckal exemption apply to contracts of insurance? And lastly, in order for the Teckal exemption to apply at all, must the control which the contracting authority exercises over the contractor be exercised by that authority individually or was it sufficient that it be exercised collectively?

The High Court and the Court of Appeal had held that the exemption did apply to both the UK Regulations and to contracts of insurance. However, they concluded that the control test was not satisfied because LAML was too independent from the local authorities which made up its membership.

The Supreme Court unanimously allowed the appeal, Lords Hope and Rodger both delivering judgments. The Court held that the exemption applied to the Regulations and to insurance contracts alike, and that it was sufficient for it to apply that the co-operating public authorities together exercise collective control over the party to whom contracts are awarded. It did not matter that insurance was not a service that the local authority could provide for itself.

The purpose of the Directive was to ensure that, if public authorities decided to obtain the services which they need from outside bodies, proper procedures were followed to ensure that potential providers have an opportunity to compete for the work. The Directive doesn’t apply where a public authority obtains the product or service from its own resources, nor where it is obtained from a body which although separate is so closely connected with it that the authority should be regarded as having obtained it from its own resources. There is no reason in principle to distinguish between a situation where the body from which services are obtained exists to serve the interests of a single local authority and where it exists to serve the interests of several local authorities.

The Teckal control test required that the public authority exercise a power of decisive influence both the strategic objectives and significant decisions of the other body. This need not be exercised individually but could be in union with other public authorities. There must be no private interests involved, and the public authority must act solely in the public interest, but individual control was unnecessary. Here, the participating local authorities did exercise collective control over LAML: meetings of LAML’s board were not validly constituted unless a majority of those present were directors representing a public authority. Each authority had one vote at general meetings and retained a power to direct the board by special resolution. The fact a director could not participate in a board meeting which considered a claim by a member which he or she represented was a matter of detail. The function test was also satisfied since LAML existed only to serve the insurance needs of its members.