At a glance
The Teckal judgment (Case C-107/98, 1999) established that a public authority can sometimes award a contract to a separate legal entity without competition, provided it controls that entity as it would one of its own departments and the entity works essentially for it. In EU law the principle is now codified in Article 12 of Directive 2014/24/EU, which adds a numerical activity test of more than 80%, a rule on private capital, and separate provisions for joint control and for cooperation between authorities.
In the UK the exemption now sits in Schedule 2 to the Procurement Act 2023, which has applied to new procurements since 24 February 2025 and which differs from the EU rule in several respects, most notably on shareholdings. On 9 September 2026 the European Commission also proposed a regulation to replace the 2014 directives. It would keep the in-house exclusion in a very similar form, but it is a proposal only and is not yet law.
Why the case still matters
Public bodies frequently deliver services through companies and other entities that they own. Whether they can award those entities work without a tender depends on a line of authority that began with a single preliminary ruling in 1999. The issue continues to be litigated, as the recent judgments below show, and it affects local authority trading companies, shared-service bodies and jointly owned municipal utilities across Europe.
The Teckal case
Background
In May 1997, the municipal council of Viano adopted a decision entrusting the management of the heating service in several municipal buildings, including the supply of fuel, to AGAC (Azienda Gas-Aqua Consorziale di Reggio Emilia). AGAC was a consortium formed by several municipalities, Viano among them, under Italian local government law to provide energy and environmental services, and it had its own legal personality and operational autonomy. The contract was awarded without any call for tenders. The price for the first year, from June 1997 to May 1998, was set at 122 million lire (€63k in Euro (ECU) equivalent value in 1998 based on the fixed translation values): 86 million for the supply of fuel and 36 million for the operation and maintenance of installations.
Teckal Srl, a private company that supplies heating oil and services heating installations challenged the award before the Regional Administrative Court for Emilia-Romagna, which referred a question to the Court of Justice in March 1998.
AGAC’s statutes shaped the issues, its major decisions, including its accounts and budgets, required the approval of a general meeting of the member municipalities, but its other management bodies were not answerable to the municipalities for their managerial acts, it had to balance its budget and operate profitably, and it was permitted to supply services to private persons and to public bodies outside its membership.
What the Court decided
The referring court had asked about Article 6 of Directive 92/50/EEC, because the contract combined supplies with services and the fuel outweighed the services in value. That directive contained no equivalent of the services directive’s exclusion for awards to bodies that are themselves contracting authorities, and the exceptions it did contain were exhaustive. The fact that AGAC might itself be a contracting authority therefore did not take the award outside the directive.
The Court then stated the principle for which the judgment it remembered (paragraph 50). In principle, a contract between a local authority and a legally distinct person is caught by the rules. The position can be different only where the authority exercises over that person a control similar to that which it exercises over its own departments, and that person carries out the essential part of its activities with the controlling authority or authorities. The Court did not decide whether the relationship between Viano and AGAC met those conditions. That was a matter of fact for the national court, which also had to determine whether the contract reached the threshold of ECU 200,000 then in force (the ecu being the accounting that preceded the euro).
How the case law is developed
Between 2005 and 2009 the Court refined the test in several judgments. In Stadt Halle (C-26/03, 11 January 2005), the Court held that any private capital participation in the entity, even a minority holding prevents the arrangement being treated as in-house. In Carbotermo (C-340/04, 11 May 2006), it ruled that the essential activity condition is met only if the entity’s activities are devoted principally to the controlling authority, with any other activity of marginal significance. The court weighs all the circumstances, quantitative and qualitative, and counts the turnover earned under the authority’s own award decisions, including turnover from users of the service, regardless of who pays.
Two further judgments extended the approach beyond a single owner. Coditel Brabant (C-324/07, 13 November 2008) accepted that several authorities may exercise the required control jointly over an entity they own together, and Commission v Germany (C-480/06, 9 June 2009) accepted that cooperation between public authorities in pursuit of a shared public-service task can fall outside the procurement rules even where no authority controls a separate entity.
Recent decisions of the Court of Justice
Comune di Lerici (C-719/20, 12 May 2022)
A municipality had entrusted its waste service, without a tender, to a company jointly controlled by several municipalities. The company later ran a competition to select a partner for a corporate combination, and the large publicly controlled group it chose acquired the company, the municipality sold its shares and no longer held any stake, even indirectly. The Court held that the directive precludes a national practice under which performance of the contract continues automatically with the acquirer in those circumstances. The acquisition changed a fundamental condition of the contract. The provision permitting a contractor to be replaced after corporate restructuring did not help, because the original award had not followed a compliant procedure, and a competition run by the company for its own purposes could not substitute for one run by the authority.
Sambre & Blesme (C-383/21 and C-384/21, 22 December 2022)
A Belgian social housing company and a municipality directly awarded services to an intermunicipal body in which the housing company held a single share. The Court confirmed that Article 12(3) and 12(4) of the directive have direct effect where a Member State has not transposed them in time. On Joint control, it held that an authority must be able to intervene in the entity’s decision-making bodies through a representative acting on its own behalf, indirect connections, such as a person who happens to sit on both bodies, are not enough. On cooperation under Article 12(4), it held that the arrangement must serve objectives common to all participants, which was not the case where one authority merely contributed to objectives shared only by the others.
A pending reference on the 80% test
The Swedish Supreme Administrative Court has referred a question (registered as Case C-672/26) on whether sales that a jointly controlled company makes to third parties, on a market where it competes with private firms, as part of a contract awarded by its owners, count towards the 80% of activities carried out in performance of tasks entrusted by the controlling authorities. At this time of writing there is no judgement, and the outcome could affect many jointly owned municipal companies that sell part of their output commercially.
The United Kingdom
Before 24 February 2025 the exemption was found in regulation 12 of the Public Contracts Regulation 2015. The leading domestic authority remains Brent London Borough Council v Risk Management Partners Ltd (2011) UKSC 7, decided under the earlier 2006 Regulations. Several London boroughs had set up a mutual insurance company, London Authorities Mutual Limited, and the Supreme Court held unanimously that the Teckal exemption applied and that it was enough for the participating authorities to exercise control collectively.
The Procurement Act 2023 now deals with the subject in Schedule 2, paragraph 2 covers ‘vertical arrangements’ (the Teckal situation) and paragraph 3 ‘horizontal arrangements’ (cooperation between authorities). Procurements begun before 24 February 2025 generally continue under the old regulations.
Control is defined by reference to the Companies Act 2006 concept of a parent undertaking, with ‘undertaking’ widened to include any person, and no one other than the authority or authorities may exert a decisive influence on the controlled person’s activities, directly or indirectly. The rule on shareholders is notably strict: if any person that is not a public authority holds shares in the controlled person, it is not treated as controlled, so the EU directive’s narrow exception for non-controlling, non-blocking private capital has no counterpart. More than 80% of the controlled person’s activities must be carried out for the authority or authorities, or for other persons they control. Under regulation 42A of the Procurement Regulations 2024, the default measure is turnover over the three years ending on the date of contract award. Where turnover does not satisfy the test, costs, time spent or the value of goods, services or works supplied may be used instead, and credible business projections apply to new or reorganised entities.
Where several authorities exercise control jointly, each must be represented on the board or equivalent decision-making body (one representative may act for several), and the controlled person must not carry out activities contrary to the interests of any of them. The exemption works in both directions, covering awards by the owner to the controlled person and awards by the controlled person to its owner, and the Cabinet Office guidance illustrates sister and grandparent-and grandchild structures. It is available only to contracting authorities that are public authorities, and not to public undertakings or private utilities.
What may change: the proposed EU Public Procurement Act
On 9 September 2026 the European Commission adopted for a regulation on public contracts and concessions (COM(2026) 590 final, 2026/0265 (COD)), branded the Public Procurement Act. It would repeal Directives 2014/23/EU and 2014/25/EU and replace them with a single, directly applicable regulation. On in-house awards, the proposal is largely one of continuity.
The proposal now goes to the European Parliament and the Council and may change materially. Under recital 65, the regulation’s application would be deferred by two years after it enters into force. Until then, Directive 2014/24/EU and the national rules implementing it continue to apply.
Background Reading and Additional Sources:
Judgment of the Court (Fifth Chamber) of 18 November 1999. – Teckal Srl v Comune di Viano and Azienda Gas-Acqua Consorziale (AGAC) di Reggio Emilia. https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX%3A61998CJ0107
Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC Text with EEA relevance https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0024
Joined Cases C-383/21 and C-384/21: Judgment of the Court (Fifth Chamber) of 22 December 2022 https://op.europa.eu/sk/publication-detail/-/publication/9241f5ab-b0c7-11ed-8912-01aa75ed71a1/language-en
Case C-672/26, Konkurrensverket – when the in-house company sells to everyone else https://eulawradar.com/case-c-67226-konkurrensverket-when-the-in-house-company-sells-to-everyone-else/
