Definition
Teckal Exemption
Allows a buyer to contract with its own controlled entity without competition.
The Teckal exemption, named after a European Court of Justice case, allows a public authority to award a contract directly to a separate legal entity it controls — such as a wholly owned local authority company — without running a competitive tender, provided strict control and activity conditions are met.
The conditions that must be met
To rely on the exemption, the controlling authority (or authorities, in the case of joint control) must exercise control over the entity similar to that exercised over its own departments, meaning genuine influence over strategic objectives and significant decisions rather than mere shareholder oversight. The entity must also carry out the great majority of its activities for the controlling authority or authorities, rather than operating substantially as an independent commercial player in the open market.
These conditions, originally developed through case law and later codified in the Public Contracts Regulations 2015, continue in similar form under the Procurement Act 2023, which refers to this as a vertical arrangement between a contracting authority and a connected entity.
- Control condition: similar to control over the authority's own departments
- Activity condition: the great majority of the entity's activity is carried out for the controlling authority
- No private capital participation in the controlled entity, subject to limited exceptions
- Applies to arrangements between a council or other public body and its own wholly owned companies
Why suppliers care about it
The exemption means certain public sector work — for example services delivered through a local authority's own housing, leisure or waste management company — may never be advertised on Find a Tender or Contracts Finder, because it is lawfully awarded without competition.
Suppliers who believe a Teckal-style arrangement is being used unlawfully, where the controlled entity does not genuinely meet the control or activity tests, may have grounds to challenge the arrangement, though this typically requires strong evidence and specialist legal advice.
Frequently asked questions
- What is the Teckal exemption used for?
- It allows a public authority to award contracts directly, without tendering, to a separate legal entity it controls in a similar way to its own internal departments — commonly a wholly owned local authority trading company — provided that entity carries out almost all its work for the controlling authority.
- Can a Teckal company also win contracts from other public bodies through open tender?
- Yes, to a limited extent. Provided the great majority of its activity remains directed towards its controlling authority or authorities, a Teckal entity can carry out a small proportion of work for other clients, including via competitive tendering, without losing its exempt status.
- Does the Procurement Act 2023 still allow Teckal-style arrangements?
- Yes. The Act preserves this type of exemption, describing it as a vertical arrangement with a connected entity, and applies broadly similar control and activity conditions to those developed under the earlier case law and PCR 2015.
Related terms