Under s 18 (1) e) of the Public Procurement Act (PPA), a contracting authority is not bound to hold an open tender in cases where supplies, services or construction work are being provided for a public contracting authority by an entity that performs a significant part of its activities for the benefit of this authority, and the authority has exclusive ownership rights over that entity. A public authority has exclusive ownership rights over a given entity if it directly disposes of all voting rights related to the interest in that entity, or if the entity is entitled to manage the public authority’s assets and has no assets of its own and the public authority exclusively controls the entity’s management.
Unlike the exemptions provided by s 18(1) and (2) PPA which permit the holding of public tenders outside the PPC system, this exemption does not derive from European Parliament and Council Directive 2004/18/EC on the coordination of procedures for the public procurement of public work contracts, public supply contracts and public service contracts (“European Directive 2004/18/EC”). (The latter is now Directive 2014/24/EU of 26 February 2014, on public procurement and the repeal of Directive 2004/18/EC, which regulates public procurement procedures at Community level.) The origin of this exemption lies in the case law of the European Court of Justice. For its interpretation, it is thus necessary to consider relevant European Court of Justice case law and strictly follow that court’s interpretation.
To apply the in-house exemption, the following (cumulative) conditions must be met:
1. The contracting authority must be a public contracting authority under s 2(2)PPA;
2. The public contracting authority must hold exclusive ownership rights in the entity to which it intends to award the public contract outside the PPA system; and
3. The entity in question must perform a significant portion of its activities for the benefit of the public contracting authority.
At a Community level, Art 12(1) of Directive 2014/24/EU on public procurement dated 26 February, 2014 (effective on 17 April, 2014), on public procurement and the repeal of Directive 2004/18/EC, Art. 12(1) states that:
1. The contracting authority (founder) must control the legal entity concerned in a similar manner to the way it controls its own organisational branches;
2. Over 80% of the controlled entity’s activities must represent tasks for the public contracting authority (founder); and
3. No private person may have a direct capital interest in the controlled legal entity.