Contract or concession? The pace heats up

Stephen Pearson, Freeths, Nottingham

As local authorities become increasingly entrepreneurial in their efforts to ward off the cold winds of austerity, activities in terms of traditional purchasing have become a little trite.

Firms are dealing with a number of situations where, although a local authority may be seeking a service provider, the authority itself will not pay for that service. The service may be self-funding, or the authority may simply make it available for members of the public to use and direct customers towards the service provider, thus potentially generating an income as a result.

Examples include:

  • pay and display car parking;
  • pest control services;
  • debt enforcement activity;
  • leisure services;
  • burial and cremation;
  • use of venues for events and catering; and
  • retail outlets within council premises.

The legal analysis of these relationships can be difficult. Certainly there has been a traditional view that ‘this is a procurement, issue the OJEU (Official Journal of the European Union) notice’, but under the Public Contracts Regulations 2015 a contract is only a public contract if it relates to the provision of goods or services to the authority for ‘pecuniary interest’, that is payment by the council.

If the council is not paying, either because they receive monies or others pay for the service, then the correct analysis would seem to be that the contract is not one to which the painful process of OJEU, PQQ (pre-qualification questionnaire), ITT (invitation to tender) and other awkward acronyms need apply.

This view has recently been confirmed in the High Court case of Newlyn v London Borough of Waltham Forest (11 April 2016). An enforcement (bailiff) company mounted a procurement challenge under the Public Contracts Regulations 2015 against a contract entered into by a local authority. Its claim was struck out on the basis that, even though the project was run by the authority via an OJEU contract procedure, it was never, in the view of the Technology and Construction Court division of the High Court (Mr Justice Coulson), a ‘procurement’ and the challenge was ‘unarguable in fact and law’. This is because the enforcement company ran the contract on the basis that it was self-funding. As is commonly the case; it derived its contract income from fees paid by the council’s debtors, not from any monies payable by the council.

Let joy be… well, actually, rather confined… as the exclusion of this sort of service concession is now governed by a new regime contained within the Concession Contracts Regulations 2016 published on 11 March and effective from 18 April 2016.

The bad news is that under these regulations a contract such as this, which is a concession, defined as ‘the right to exploit the services that are the subject of the contract… together with payment’, is now subject to the requirement to issue a form of OJEU notice and to follow what can be best described as a slimmed down version of the process for awarding contracts generally. However, the process to be followed is simpler.

Although there is a prescribed form of notice, Regulation 30 talks of ‘freedom to organise the procedure… subject to compliance with these regulations’, and the threshold above which concessions need to be advised is subject to a minimum ‘whole-life’ value of €5 million, taking into account the income to be derived by the operator using an ‘objective method specified in the concession documents’, which could be somewhat challenging.

The result of this is that while the new regime needs to be carefully considered on a project by project basis, authorities should have a careful look at whether either or none of these regimes apply when making contracts.