Summary of the Stockholm Administrative Court's judgment of 25 November 2021 in Case No 11877-21.
The Stockholm Administrative Court has recently delivered a judgment in a case concerning the scope of the so-called rental exemption in the Public Procurement Act (2016:1145) regarding the public sector and public procurement.
The background of the case is that the Swedish Police Authority carried out a competitive tendering process without applying the PPA, with the aim of finding a landlord who would acquire a property and carry out a public works contract regarding a new police station in Motala, that after construction would be rented back by the Police Authority. The actual public works contract would be procured according to the PPA. In addition, the Police Authority considered that the rental exemption in the PPA was applicable. One supplier applied for review under the PPA, citing that the arrangement constituted an unauthorised direct procurement.
The Administrative Court found that the rent in the lease agreement was not determined in advance, but would be based on, among other things, the landlord's design costs and costs for the execution of the contract work. The lease agreement was therefore deemed to include a service subject to procurement since the landlord received remuneration through the lease agreement for services to be provided by the landlord. The fact that this remuneration was only a limited part of a larger whole did not mean that the services were exempt from procurement obligations. The services were therefore not considered to be so closely related to the lease agreement that the services must be able to be covered by the rental exemption. The Administrative Court found that the fact that the contract structure chosen gives the landlord a legitimate interest in performing the services does not, in the circumstances in question, also mean that the rental exemption becomes applicable. According to the Administrative Court, such a scheme would constitute an undue circumvention of the PPA.
Since no contract was entered into, the Administrative Court decided that the opening up of competition should be redone and that the PPA should be applied.
The Administrative Court's assessment and underlying reasoning are not exactly surprising, but rather in line with the practice that exists regarding the rental exemption and its demarcation in relation to public works contracts subject to procurement. The decision is highly relevant because there are often questions where the underlying structure is not entirely different from the Police Authority's contract construction, where the parties can be lulled into a false sense of security that the arrangement is compatible with the PPA as long as the public works contract is opened up to competition in accordance with procurement legislation. It is of the utmost importance to ensure that the landlord does not receive remuneration, directly or indirectly, for services rendered, as there is otherwise a risk that the structure constitutes an unauthorised direct procurement, and that procurement law considerations are also made in relation to the design necessary in the project. If a contract design and rental model such as the one at present are to be applied, the arrangement as a whole must be opened up to competition in accordance with procurement legislation.
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