Regulaton & Policy
Mutuals and the New EU Procurement Directives

It seems like may of our politicians, certainly in some countries, have fallen in love with “mutuals.” Mutuals are employee-owned organisations that re-invest their profits and are therefore seen as being more dynamic and efficient than purely state owned organisations, yet not as ruthless and profit-obsessed as a usual capitalist wealth maximising business.

So one of the arguments during the development of the 2013 new EU procurement directives was around the protection that can be offered to new mutuals formed by groups of people from within the public (state) sector. So the idea is that a group of health workers, for instance, might decide to form themselves into a mutual and offer the sort of services they provided as state employees, but now as “part owners” of a mutual.

The theory is that this will create, as if by magic, fewer government workers, a lower state pension liability, and a harder working, more dynamic organisation (the mutual). It might even go on and win business more widely, competing with private sector firms. That is the theory anyway. And there are good and successful examples of mutuals (or similar models) around Europe.

The new directives have gone some way towards giving some encouragement for new mutuals, by offering some protection from the harsh realities of life in the private sector. Where an organisation is created, the contracting authority can reserve a contract to organisations of a mutual nature, stopping private sector firms that do not meet the conditions from competing.

However, as always, it is not as simple as that. There are a number of factors to consider when you read the directives (article 77).

1. Firstly, the directive is limited to certain specified sectors, namely health, social and certain “cultural services.” The directives give a long list of CPV codes for the allowed sectors.

2. Then the definition of the mutual is quite tightly drawn. This is to stop “pseudo mutuals” getting in on the act – organisations that might really be just as capitalist as any other firm. So the organisation must show these characteristics:

(a) its objective is the pursuit of a public service mission linked to the delivery of the services referred to in paragraph 1 (i.e. health, social care etc);

(b) profits are reinvested with a view to achieving the organisation’s objective. Where profits are distributed or redistributed, this should be based on participatory considerations;

(c) the structures of management or ownership of the organisation performing the contract are based on employee ownership or participatory principles, or require the active participation of employees, users or stakeholders.

3. Thirdly, the contract is restricted to three years and – this is what puzzles us – the directive gives a condition that “the (winning) organisation has not been awarded a contract for the services concerned by the contracting authority concerned pursuant to this Article within the past three years.”

So once a mutual wins the contract the first time it is competed under this route, it can’t win it again in another competition restricted in this way. But does that mean the contracting authority can run another competition restricted to mutuals after three years – but it can’t award the contract to the that incumbent organisation? That seems strange to say the least, but it is how the directive reads to us.

We have asked the UK experts for their view on this, but perhaps someone else can help – any public policy experts or lawyers who want to comment?

Anyway, an interesting provision, but another tricky bit of regulation for the procurement professional or lawyer to understand and master.

Photograph: the Co-operative Group