Branch out via Europe
Social landlords creating companies to run extra services must still note EU procurement rules, says Rebecca Rees, partner at Trowers & Hamlins
The financial pressure on councils, arm’s-length management organisations and housing associations to do more for less puts a strain on organisations but also affords significant opportunity to diversify the services they provide to the wider community.
When looking at future diversification, it is worth remembering the European Union procurement responsibilities - if only to find innovative ways to address the stringent requirements and incorporate them into everyday practice.
Councils and ALMOs are used to dealing with legal restrictions on their activities. While they might reasonably consider that companies they create to undertake commercial activities in the open market and in competition with the private sector would not be subject to EU procurement regulations, this is not necessarily the case.
The catch-all definition of a ‘contracting authority’ under the Public Contracts Regulations 2006 is likely to cover ALMO subsidiaries, council trading companies and some joint venture structures, particularly if the ALMO or council owns majority of shares in it, or exercises a significant amount of control over it. Given this, any supply chain that the subsidiary or trading company wishes to utilise will need to be procured in accordance with the EU procurement regulations.
ALMO in-house exemption
This presents a unique problem for ALMOs in that careful monitoring of a subsidiary’s activities will need to be undertaken in order for both the ALMO and its subsidiary to remain within the strictly interpreted parameters of the ‘Teckal’ in-house exemption. To comply with Teckal it is important that the ALMO undertakes the essential part of its activities for its council; otherwise the current ring fence from open competition that the ALMO’s management agreement enjoys, which means it does not have to go through a public procurement exercise, may be undermined.
Less obvious in respect of the EU procurement issue is the common practice of housing associations using subsidiaries to ring-fence new build sales and development risk or to provide services to other social landlords. These subsidiaries are likely to be subject to the EU procurement regime, which means that, here too, the supply chain should be procured in an EU-compliant manner.
Seizing new opportunities
The use of subsidiaries and trading companies by councils, ALMOs and housing associations to diversify into non-housing work and to provide services to third parties will undoubtedly grow in popularity as the sector gains financial autonomy through reform of the housing revenue account.
These new opportunities present traps for the unwary, but with prior planning and expert guidance on EU procurement requirements, they can be successfully navigated.