02 October 2013

The European Public Procurement Directive applies to certain non-commercial legal entities including those “financed, for the most part, by the State.” State funding for this purpose can, however, come in indirect form as well as direct. In particular where members of an institution are obliged by law to finance that institution, indirect financing can arise.

Such indirect state financing can, for example, arise when the State either itself fixes the amount of the member’s contributions, or sets out precisely the services that the institution must supply and how the contributions will be determined leaving no more than a narrow discretion in fixing actual payments.

The European Court has looked at the boundaries of this form of indirect funding in the context of a professional association for medical professionals in Germany (IVD v Artzekammer). Individuals were obliged to join the professional association in order to practice and to contribute to the association’s funds such that its accounts balanced. Was this an example of indirect funding meaning that the association must comply with procurement legislation?

Not in this case – the professional association escaped on the basis that there was a wide degree of flexibility in how it delivered its obligations and therefore the costs it would incur and the fees it would charge its members. No indirect funding therefore existed.

This is a decision on the facts of the relevant organisation. It is clear that the structure and constitution of non-commercial entities which are funded by their members could, in the right circumstances, result in their being public authorities. Any non-commercial entity (for example educational or medical institutions) and professional associations will have to look at their own constitutions before determining whether they are themselves covered.

John Houlden leads Burges Salmon’s Procurement team. Ian Tucker and Richard Binns are members of that team advising non-commercial entities on their procurement obligations.

Key contact

John Houlden

John Houlden Partner

  • Head of Public Sector
  • Head of Procurement and Subsidy Control
  • Projects

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