UK housing prepares for euro battle

On 18 December 2003 the European Commission said it had decided to refer the UK to the European Court of Justice in Luxembourg. The reason? The UK's registered social landlords were not following EU public procurement legislation.

This is the latest episode in a saga that first hit the headlines in early 2001.Then, the European Court of Justice decided that certain entities providing social housing in France should be treated as public bodies.Consequently, they became subject to EU procurement legislation. After this decision, the commission turned its spotlight on British RSLs.

These rules mean that when a public body needs works, services or supplies whose value exceeds a defined financial threshold, it has to advertise for partners in the European Union's Official Journal. It also has to comply with the time period and other rules laid out for selecting partners and letting contracts.

Public bodies – "contracting authorities" as they are described in the legislation – include any corporation established for "the specific purposes of meeting needs in the general interest, not having an industrial or commercial character".

Such bodies also have to:

• be financed wholly or mainly by another contracting authority
  
• be subject to management supervision by another contracting authority
  
• have more than half of the board of directors or members appointed by another contracting authority.

In the French case, it was the court's view that the bodies providing social housing were under supervision by other public authorities that influenced their decisions when it came to letting public contracts. In other words, they were subject to "management supervision" by various arms of the French state. As a result, they are seen by the legislation as contracting authorities.

Since then, the commission has focused on the concept of "management supervision". This has been the basis of the disagreement with Britain.

The correspondence that has passed back and forth between London and Brussels on the subject is confidential, but the UK government (backed by the National Housing Federation) has been robust in its rejection of the commission's stance.

They argue that the nature of the supervision undertaken by the Housing Corporation is fundamentally different from that of its counterparts in France. They say RSLs are by definition independent bodies operating in a competitive environment.

There are two options: throw in the towel or contest proceedings. Legal action could start within the next six months. The clock is ticking for the OGC

The federation has also made the point that associations are in a similar position to charities, with the corporation's powers replicated by the Charity Commission in the other context. If RSLs are subject to the legislation then so should charities: it would be extraordinary if the entire charitable sector was also subject to the rules.

However, the commission remains unconvinced. It is now down to the Office of Government Commerce and the ODPM to decide what their next move should be.

There are two options: throw in the towel or contest proceedings in the European court. The commission is likely to start legal action within the next six months. The clock is ticking for the OGC.

Whatever arguments may have been put forward in the past, the commission's latest move will prompt every RSL to think hard about compliance and non-compliance risk.

If an RSL decides to advertise for contractors in the Official Journal, it will need to choose which procedure to adopt. There are three types of tender procedure available:

• negotiated procedure. The contracting authority negotiates the terms of the contract with one or more tenderers. Typically, the procedure is split into a pre-qualifying stage, followed by expressions of interest to negotiate, then the selection of one or more companies for final negotiations
  
• open procedure, under which interested parties can bid direct for the contract
  
• restricted procedure. The authority invites companies to participate in a two-stage process: pre-qualification onto a shortlist, then the final submission of a formal tender.

The negotiated procedure is the most flexible of the three: it is also the least transparent and objective. As a consequence, it may only be used in certain circumstances – for example, where there is "extreme urgency" because of a natural disaster or where there has been no response to an advertisement under the other procedures. Mostly, restricted procedure is likely to apply.

RSLs will also need to factor in the minimum time needed for each tender. Four months for the restricted procedure would not be unusual.

If a tender goes ahead in breach, "disappointed" would-be contractor could try to stop the contract or claim damages against the authority in the shape of abortive tender costs or lost profits. Once a contract has been let, the only remedy is damages.