The 1999 judgment in Teckal Srl v Comune di Viano (Case C-107/98) is a fundament of European public procurement law. It established the legal doctrine commonly known as the “Teckal exemption,” under which certain contracts awarded by public authorities to entities they control may fall outside the scope of EU procurement rules.
Context and procedural background
In 1997 the Municipality of Viano (Italy) entrusted the management of heating services for certain municipal buildings and the supply of fuel to AGAC, a consortium company owned by several municipalities including Viano. The award was made without a competitive procedure. Teckal Srl, a private operator that had previously supplied fuel and serviced Viano’s heating systems, challenged the decision before the regional administrative court, which referred a question to the Court of Justice of the European Union (CJEU). The reference asked how the EU procurement directives then in force applied to an award made by a local authority to a legally distinct consortium of which it was a member.
Legislative framework applicable at the time
Two directives were relevant: Directive 92/50/EEC on public service contracts and Directive 93/36/EEC on public supply contracts. Because the value of products in the contract exceeded the value of services, the Court held that Directive 93/36/EEC governed the award. The Court also emphasised that the exceptions listed in Directive 93/36 are exhaustive and that, unlike Article 6 of Directive 92/50 (which allowed exclusive-rights awards to contracting authorities), Directive 93/36 contained no similar exclusion.
The contract’s value needed to be compared against the threshold of ECU 200,000. The “ECU” (European Currency Unit) was the accounting currency used within the European Communities at that time and served as the precursor to today’s Euro. The Court left it to the national court to assess whether the contract value in fact exceeded this threshold.
The national court’s question was framed by reference to Article 6 of Directive 92/50. The CJEU clarified that, to give a useful answer, it could consider the correct directive and the autonomous EU-law concept of a “public contract”. It then examined whether a contract between a local authority and a formally distinct, decision-making independent entity is, in principle, a public contract that triggers Directive 93/36.
The Teckal test: two cumulative conditions
At paragraphs 49–50, the Court articulated the core principle that has since become known as the in-house (Teckal) exemption. As a rule, a contract between (i) a contracting authority and (ii) a legally distinct person is a public contract. Exceptionally, it will not be treated as such only if both conditions below are satisfied:
- Similar control: the authority exercises over the entity a control similar to that over its own departments.
- Essential activities: the entity carries out the essential part of its activities for that controlling authority (or authorities).
These conditions do not appear in the text of Directive 93/36 itself; they are judicially articulated limits that preserve the ability of public bodies to use their own resources for public-service delivery while safeguarding competition where they contract on the market.
Factual features highlighted by the Court
The company at issue was AGAC (Azienda Gas-Acqua Consorziale), a consortium company created under Italian municipal law. It was jointly owned by a number of municipalities in the Reggio Emilia province, including Viano, and provided local public utility services such as gas, water, and heating management. Although municipally owned, AGAC was a separate legal person with its own governing bodies.
The judgment set out elements of AGAC’s statutes and governance: major managerial acts required approval by a general meeting of municipal representatives; other organs (council, chair, director-general) were not directly answerable to the municipalities for their managerial acts; and the entity was required to pursue budgetary balance and operational profitability. These characteristics formed part of the record before the national court, which had to determine whether the municipality of Viano in fact exercised “similar control” over AGAC and whether AGAC’s activities were predominantly for its public owners. The CJEU (Court of Justice of the European Union) did not itself decide those factual issues, but confined its role to setting out the legal test.
The Court ruled that Directive 93/36/EEC applies to a contract for pecuniary interest, that is, a contract involving payment or monetary consideration, concluded in writing between a local authority and an entity formally distinct and decision-making independent of it, whether or not that entity is itself a contracting authority. It is for the national court to determine, based on the facts, whether the two Teckal conditions (similar control and essential activities) are satisfied and whether the arrangement is genuinely internal (an in-house award) rather than a market contract subject to procurement law.
Why Teckal mattered
The judgment provided the first clear, general formula delimiting when an authority can award to a separate legal person without tender, because the arrangement is functionally equivalent to using its own department. The decision also:
- Emphasised that exceptions to procurement obligations are narrowly construed and contained in the Directive, with the in-house carve-out arising only to prevent the rules being applied to genuine internal arrangements.
- Confirmed that classification of the contract (supply vs services) follows the main object/value rule (here, supplies predominated)
Relationship to later law (brief, for context)
Teckal was later codified in Article 12 of Directive 2014/24/EU, which states in legislation the two core conditions (similar control and ≥80 percent activities for controlling authorities) and adds an explicit no direct private capital requirement, alongside provisions on reverse and sister awards. This codification gives a statutory anchor to the Teckal doctrine across the EU (and, in parallel, in the UK regime).
Sources:
Judgment of the Court (Fifth Chamber) of 18 November 1999, Teckal Srl v Comune di Viano and AGAC di Reggio Emilia, C-107/98 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX%3A61998CJ0107
Brent London Borough Council and others (Harrow London Borough Council) (Appellant) v Risk Management Partners Limited (Respondent) https://supremecourt.uk/uploads/uksc_2009_0166_judgment_9199baad85.pdf
