In-House Provision (Teckal Exemption)

The Teckal exemption is the most widely used exception to EU public procurement competition requirements. It takes its name from the Court of Justice of the EU case Teckal Srl v Comune di Viano (C-107/98), which first articulated the conditions under which a public authority can directly commission a controlled entity without running a competitive tender. The exemption was subsequently codified in Directive 2014/24/EU, giving it clear statutory expression.

What is the Teckal Exemption?

Article 12 of Directive 2014/24/EU codifies the in-house exemption, setting out three conditions that must all be met for a contract to fall outside the directive's scope.

The control test requires that the contracting authority exercises over the controlled legal person a control similar to that which it exercises over its own departments. This means the authority has decisive influence over both the strategic objectives and the significant decisions of the entity. Mere supervisory or regulatory oversight is not sufficient; the control must be comparable to the authority's control of its own internal departments.

The essential activities test requires that more than 80% of the activities of the controlled entity are carried out in the performance of tasks entrusted to it by the controlling contracting authority (or other legal persons controlled by that authority). This prevents entities that compete significantly in the open market from benefiting from the exemption.

The private participation test requires that there is no direct private capital participation in the controlled legal person (with an exception for non-controlling forms of private capital required by national legislation that do not confer a decisive influence).

Article 12 also extends the exemption to two related scenarios: where control is exercised jointly by multiple contracting authorities (the "jointly controlled" Teckal), and where the controlled entity is itself a contracting authority that awards a contract to its controlling authority (the reverse Teckal or "ascending" award).

If all conditions are met, the arrangement is entirely outside the scope of the directive and the contracting authority is free to award the contract directly without competition. If any condition is not met, the contract must be procured competitively.

Why it matters for bidders

The Teckal exemption matters to commercial bidders because it defines the boundary of contestable market. Contracts awarded under the exemption are not available for competition; they go directly to the in-house entity. Understanding when the exemption is legitimately available, and when it is being stretched beyond its legal limits, is important for identifying genuine market opportunities and for challenging improperly excluded contracts.

An in-house entity that exceeds the 80% activities threshold by doing significant business in the open market loses the protection of the exemption for contracts above that threshold. Monitoring the commercial activities of such entities can reveal opportunities to challenge improperly direct-awarded contracts.

Example

A German city owns 100% of a municipal waste management company. The city's transport department exercises decisive control over the company's strategy and decisions, the company performs 85% of its work for the city and related municipal bodies, and there is no private capital involvement. The city wishes to extend the waste collection contract with the company. Because all three Teckal conditions are met, the extension does not need to be competitively tendered under Directive 2014/24/EU. The arrangement is a lawful in-house provision.

Frequently Asked Questions

Can the Teckal exemption apply where a city owns only a minority stake in a company?

No. A minority stake does not constitute the level of control required under the Teckal doctrine. The authority must exercise control "similar to that which it exercises over its own departments," which typically requires at least majority ownership and decisive influence over governance. A minority shareholding, even accompanied by representation on the board, generally does not meet this standard. Partial privatisation of a formerly in-house entity is a common trigger for the loss of Teckal protection.

What is the difference between the Teckal exemption and public-public cooperation?

The Teckal exemption covers contracts between a contracting authority and an entity it controls, where the relationship is essentially one of a parent directing a subsidiary. Public-public cooperation covers agreements between separate public authorities cooperating to jointly perform a public service, where neither controls the other. Both are exempt from competition requirements, but under different conditions and for different reasons.

What happens if an in-house entity later exceeds the 80% activities threshold?

If an entity that was originally Teckal-compliant subsequently expands its commercial activities beyond the 20% permitted ceiling, contracts awarded under the Teckal exemption may become legally challengeable. The conditions must continue to be met throughout the life of the contract. Contracting authorities should monitor their controlled entities' commercial activity levels and seek legal advice if the balance shifts materially.