Magazine article Public Finance

Outsourcing 'Could Breach EU Rules'

Magazine article Public Finance

Outsourcing 'Could Breach EU Rules'

Article excerpt

Local authorities are vulnerable to a legal challenge that their outsourced services breach new European Union rules designed to avoid the overpayment of contractors, Public Finance has learnt.

The new rules - issued on July 15 - are based on a 2003 European Court of Justice judgment and list four tests that contracts for services such as school facilities, home care services and waste collection must satisfy if they are to avoid beine classified as illegal 'state aid'.

A Department of Trade and Industry official said the European Commission 'has taken a view that almost all compensation [payment] awarded before the judgement is unlikely to meet the tests'.

Most significant among the four tests are edicts that contractors cannot earn more than 'reasonable profits'; must be 'well run and cannot be reimbursed for expenses not detailed in the initial contract.

The commission defines 'reasonable profit' as 'the average rate for the sector concerned in recent years'. …

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