IN-HOUSE CONTRACT CAN BE CONCLUDED ONLY IN EXCEPTIONAL CASES AFTER ASSESSING ITS IMPACT ON FAIR COMPETITION

The Lithuanian competition authority Konkurencijos taryba supervising how municipalities comply with the Law on Competition when concluding in-house contracts will analyse whether they conform to the judicial interpretations of the Constitutional Court concerning the assessment of the impact of in-house contracts on fair competition.

The Constitutional Court examined the constitutionality of Point 2 of Paragraph 2 of Article 10 of the Lithuanian Law on Public Procurement and provided its interpretations. The legal provision of the aforementioned law stipulates that when organising the provision of public services, a municipality may conclude an in-house contract and authorise its municipal company to provide the services of water and heat supply, wastewater treatment, waste management, passenger transport, maintenance and management of territories and streets, catering in educational, social care or health care institutions.

By the ruling of 5 May 2022 the court recognised that municipalities may conclude in-house contracts on the provision of certain public services only in exceptional cases, i.e. when it cannot be ensured by selecting a service provider in accordance with the Law on Public Procurement. Before concluding an in-house contract, however, the impact of a relevant decision on fair competition must be assessed, ensuring that no privileges are granted to a particular public service provider and that other undertakings are not discriminated against.

For many years Konkurencijos taryba has consistently said that in-house contracts may restrict competition by granting privileges to companies owned by municipalities, as well as by discriminating against other undertakings and thus creating different competitive conditions.

“As a result of in-house contracts the society may be deprived of the benefits of competition. Only competition ensures an effective mechanism that encourages undertakings to be efficient and provide better quality services at the lowest possible prices", said the authority’s Chairman Šarūnas Keserauskas.

He emphasised that if the municipalities concluded in-house contracts without complying with the conditions set by the Constitutional Court, Konkurencijos taryba could launch an investigation to assess whether the respective decisions of municipalities do not infringe the Law on Competition.

In case of an infringement of the Law on Competition, a municipality may be obliged to terminate the in-house contract and select a public service provider by organising a competitive procedure. The municipality may also be fined up to 0.5% of its annual budget in the current year and other gross annual revenue in the preceding year, but not more than EUR 60,000.