Local Authority Trading Company
A Local Authority Trading Company (LATC) is a company wholly owned by a Local Authority to operate certain waste services. This is an an alternative to the out sourcing of services to a private waste management company or the delivery of the services by an in house delivery team within the Authority.
Teckal
The LATC is often referred to as a Teckal company. The term ‘Teckal’ comes from a particular legal case and the test on whether a local authority owned company qualifies for the ‘Teckal’ exemption in the EU Procurement Regulations (Teckal SrL v.Commune di Viano, Case C-107/98 (1999) ECR I-8121)[1] i.e. the Authority can pass the work to the company without having to put it out to competitive tender. In Scotland the same arrangement is known as an Arm’s Length External Organisation (ALEOs).
Teckal Parameters
For any Local Authority to be able to introduce an LATC it must be within the Teckal Parameters of which there are two tests[2].
- the control test
- the functional test
The Local Authority must control all of the shares in the company and must also exercise effective day-to-day control over its affairs; in other words, the same as the relationship between the council and one of its internal directorates. This can be achieved through the governance structure[2].
The company must be “inwardly and not outwardly focused”. The legislation requires that at least 80% of the activity of the Teckal company (over 80% of its turnover) must be for its public sector owners. Any contracts with other public sector bodies or private sector entities will not benefit from the Teckal exemption and the company will have to tender in the ordinary way for such contracts in accordance with any applicable procurement legislation[2].
Changes to the EU procurement regulations in 2015 mean that local authorities can now undertake 20% trading (previously this was only 10%) with third parties outside of their ‘Teckal’ contract which is calculated based on three years' turnover[2].
For a company to be Teckal compliant the courts always turn to the detail of the company structure and constitutional documents. Any LATC therefore needs to ensure that the council still has the power to issue directions and that the autonomy of the board does not supersede council powers. Some key points around Teckal compliance, based on previous cases and court judgments, are[2]:
- The council has the power to issue directions to the LATC on “strategic matters or important issues of policy”.
- If the articles of the LATC say that non-authority board members could be appointed, the council must retain the express right to remove any such directors at any time.
- The constitution must consider the level of autonomy of the board and the authority must have the power to exert control over the LATC.
- That the local authority holds all of the share capital in the company will usually (but not always) be indicative of control.