For several years now, there has been public debate in Finland about the so-called in-house entities, which are mainly related to municipalities and wellbeing services counties. In these arrangements, municipalities and wellbeing services counties set up joint in-house entities from which they procure services without competitive tendering under the Public Procurement Act. Some of these in-house entities have up to hundreds of shareholders. Discussions have therefore focused on the assessment of the conditions under which these entities are to be acquired, and it now seems that a real change in approach is being sought. The issue has been discussed by both the Finnish Competition and Consumer Authority (FCCA) and the Market Court, and in-house entities have also been considered in the current Government Programme.
The FCCA has investigated the legality of in-house entities following requests for action from business organizations. The main question has been whether large companies owned by public operators are related to their owners. In one case, a wellbeing services county had decided to purchase human resources support services from a company. Before procuring the services, the county had acquired 0,04 % of the company’s share capital. The FCCA considered that the company was not an in-house entity of the county and brought the case before the Market Court in May this year. In addition, the FCCA has also assessed the in-house company status this autumn in a case where another wellbeing services county procured collection services directly from a company. According to the county the company and its parent company were in-house entities of the county, as the county owned 0.09% of the shares of the parent company. However, according to the FCCA, the subsidiary was not an in-house entity, and the acquisition should have been put out to tender. Therefore, there are currently a couple of cases pending before the Market Court concerning in-house entities, and in the first case, the Court is likely to make a decision early 2024.
In addition, the current Government Programme includes several entries on in-house entities to tackle anti-competitive procurements. First, the Programme notes that the use of in-house companies has become more common in recent years in municipalities and in the wellbeing services counties. While in-house entities can be useful in public administration, problems can arise if a public sector operator competes in the market with entrepreneurial risk-taking firms. The government’s intention is to address mainly the procurement of so-called support services by in-house entities where there is a functioning market. The reform of the regulation of in-house entities would, inter alia, limit the possibilities for contracting entities to circumvent procurement law, and each shareholder in an in-house entity would have to own at least 10% of the entity. In addition, according to the Government Programme, the legislation would be tightened up so that in-house entities can only be procured from when they are more economically advantageous overall than market alternatives or when there is another particularly strong public interest in doing so.
However, alongside the Government Programme and the decisions of the FCCA, a debate has also arisen as to whether the possible amendments to the Public Procurement Act regarding in-house entities are necessary, given that existing case law addresses the control exerted by shareholders over their in-house entities. Stay tuned as we report the following turn of events later on!
For further information, please contact:
Riikka Aarikka, Bird & Bird