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Awarding Contracts to Your Own Shared Service Companies


The Public Contracts Regulations (“the Regulations”) apply when a college or school etc. award a contract for goods or services that exceed £164k, but what happens if you are considering alternative delivery structures and shared services? For example, what would happen if you established a separate legal entity (e.g. subsidiary company) to provide services to all institutions within your group e.g. for services such as HR, Payroll, Estates Management etc. You might consider these types of contracts are actually ‘in-house’ arrangements and therefore you can award contracts to them to provide these services without competing them within the wider marketplace - that assumption may not be entirely correct.

The Regulations do indeed have an exemption for these types of contracts, provided that the following conditions are met:

  • The contracting authority (school or college) exercises a control over the legal entity concerned which is similar to that which it exercises over its own departments
  • More than 80% of the activities of the controlled legal entity are carried out in the performance of tasks entrusted to it by the controlling contracting authority (school or college) or by other legal entities controlled by that contracting authority (the essential activity test)
  • There is no direct private capital participation in the in-house company

Regulation 12(4) provides for "joint control" by confirming that the exemption also applies where two or more Contracting Authorities jointly control a legal entity, provided that the conditions regarding essential activities and private capital participation are met.

Should the circumstances in which you are operating the shared service not be able to meet these ‘tests’, you may well be in breach of the Regulations if you don’t advertise the contract opportunity and run a tender process in compliance with the Regulations before awarding the contract to your shared services company.

Therefore, if you are considering creating these types of alternative delivery structures, it is worth looking closely at the Public Contracts Regulations and subsequent case law to see what type of arrangements may fall in or out of scope.

More information on the what is commonly known as the ‘Teckal’ exemptions and review of case law in this regard can be found on FELP. You can also contact your CPC Regional Procurement Advisor for further information.

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