A long-running debate on the use (or abuse) of the so-called in-house provisions of the Public Procurement Act (1397/2016, the “Procurement Act”) was brought to a close in June. The Finnish Parliament voted in in favour of a new requirement under which a contracting authority must hold at least a 10% shareholding in a limited liability company in order to directly award a public contract to that company based on the so-called in-house exemption. The amendment targets the widespread Finnish practice of jointly owned municipal service companies (in-house companies) from which the owners procure services without competitive tendering. In addition, certain other amendments to the Procurement Act have been introduced and are explained below.
Background
The target to set a minimum 10% requirement for in-house companies was already included in Prime Minister Petteri Orpo’s Government Programme in 2023. However, given the established use of large in-house companies with dozens of municipalities among their owners, the outcome of the legislative process was far from certain.
The lobbying surrounding the reform even took on controversial features when the Finnish Competition and Consumer Authority (“FCCA”), which conducted an independent impact assessment of the envisaged amendment, discovered that an interest organisation representing in-house companies had instructed its members to respond to the questionnaires distributed by the FCCA in a particular manner (the FCCA’s press release of 4 September 2024).
According to the Government Bill, the objective of the amendment is to prevent, at the national level, the ownership of in-house companies from being fragmented into very small shareholdings, as such structures are considered problematic from the perspective of public procurement legislation and the policy objectives of promoting competition and the effective use of competition on the market. This has been problematic, in particular, in sectors where there is a well-functioning private market.
It follows already from Directive 2014/24/EU on Public Procurement that, in order to benefit from the in-house exemption, a contracting authority must exercise control over the legal person concerned that is similar to the control it exercises over its own departments. The Court of Justice of the European Union has clarified that, where several contracting authorities jointly control a legal person, each contracting authority must be represented in the decision-making bodies of that legal person, although such a representative may, in certain circumstances, also represent other contracting authorities. That requirement cannot be satisfied through a member of those bodies who acts solely as a representative of another contracting authority (Joined Cases C-383/21, Sambre & Biesme, and C-384/21, Commune de Farciennes).
In Finland, the Supreme Administrative Court confirmed in the Sarastia case that a shareholding of only 0.04% is insufficient to enable a municipality to exercise control over an entity similar to that which it exercises over its own departments (Decision of 8 October 2025, ECLI:FI:KHO:2025:T2250). Accordingly, the criteria for the use of the in-house exemption was not considered fulfilled in that case.
The other key criterion governing the use of in-house companies, namely the proportion of activities that an in-house company may carry out with parties other than its owners, was not amended. This criterion had already been subject to national “gold-plating” in Finland, as external sales are generally limited to 5% of the company’s activities and EUR 500,000 annually (or 10% where no alternative service providers operate in the relevant market), whereas Directive 2014/24/EU permits up to 20%.
The Minimum Ownership Percentage for In-House Companies
The most important elements of the new Section 15(2) of the Public Procurement Act, which introduces a 10% minimum ownership requirement for in-house companies, are the following:
- Additional requirement. The new 10% ownership requirement does not replace the requirement that a contracting authority exercise control over the in-house company; rather, it is an additional requirement that applies alongside the general control criterion. Based on the wording of the new provision, the ownership requirement appears capable of being satisfied through non-voting shares. However, should the required shareholding consist solely of non-voting shares, the requisite level of control must be ensured by other means, to be assessed on a case-by-case basis. For example, such control could be secured through a shareholders’ agreement granting the shareholder a veto right over the appointment of one or more board members.
- Scope. The requirement applies only to limited liability companies (osakeyhtiö). Other legal forms remain subject solely to the test concerning the exercise of control.
- Requirement of direct ownership. There must be a direct ownership link between the contracting authority and the in-house company. In this respect, Parliament adopted a stricter approach than that proposed by the Government, which would have permitted indirect ownership provided that the ownership structure was not used to circumvent the minimum ownership requirement.
- Exceptions. The Procurement Act provides only one exception to the 10% ownership requirement. The requirement does not apply to in-house companies established, in the public interest, for the sole purpose of providing a specific statutory service or IT systems directly related to the provision of such a service. However, the annual turnover of such an entity may not exceed EUR 1 million. The Government Bill does not estimate how many of the existing in-house entities are likely to fall within the scope of this exception.
The Government Bill further explains that additional exceptions to the 10% ownership requirement may be introduced through sector-specific legislation. Such an exception has already been included in the Water Services Act (119/2001) with respect to water utilities. According to the Government Bill, the Waste Act (646/2011) will also be amended so that publicly owned companies operating in the waste management sector are exempt from the 10% ownership requirement. In addition, the majority state-owned CSC – IT Center for Science is also expected to be exempted. - Transition period. The 10% ownership requirement will apply from 1 July 2027. However, contracting authorities may until 30 September 2026 enter into new contracts, which remain in force until 30 September 2027. In the case of in-house companies whose principal purpose is to provide statutory healthcare services that are directly necessary for the protection of life and health, healthcare services involving centralised specialised expertise as referred to in the Health Care Act (1326/2010), or information systems intended for the provision of such services, the requirement will apply from 1 July 2029.
Finally, where the termination of an existing contract would, in exceptional circumstances, result in unreasonable consequences or involve significant economic risks, the contract may, for overriding reasons relating to the public interest, remain in force until a later date, provided that it is terminated no later than 30 June 2030.
Additional Amendments of Practical Importance
The Government Bill also contains several other amendments to the Public Procurement Act. In addition to a number of technical changes, the following substantive amendments deserve particular attention.
- Market consultation (Section 65)
Conducting a market consultation or assessing alternative methods of implementing a procurement as part of procurement planning is now mandatory if the estimated total value of the procurement exceeds EUR 10 million.
In addition, the amended Procurement Act incentivises contracting authorities to conduct market consultations by providing that a market consultation exempts the contracting authority from the obligation to divide the procurement into lots (see point 2 below) and from the obligation to suspend and restart the procurement procedure if, in an open procedure, only one tender is submitted (see point 3 below). - Obligation to divide a procurement into lots (Section 75).
Where the value of a procurement exceeds the applicable EU thresholds, the contracting authority must either divide the procurement into lots or tender the individual components of the procurement through separate procurement procedures.
However, the contracting authority may refrain from dividing the procurement into lots if, having regard to the nature, scope, method of implementation, overall responsibility, or risks associated with the procurement, such division is not feasible for justified reasons, or if the procurement has been preceded by a market consultation (referred to in point 1 above). The amended Procurement Act is, however, silent on whether the market consultation must demonstrate that dividing the procurement into lots would not be appropriate or beneficial.
In addition, a procurement may remain undivided where dividing it into lots would significantly increase the administrative costs of either the contracting authority or the supplier, or would lead to a continuous increase in costs.
A breach of the obligation to divide a procurement into lots constitutes a ground for appeal to the Market Court. Since the optimal size and scope of a procurement are not always clear-cut, this amendment may lead to an increase in procurement litigation, as anticipated by the Market Court in its statement on the Government Bill. - Suspension of the procurement proceeding (Section 125).
Contracting authorities are now required to suspend a procurement proceeding, the value of which exceeds the applicable EU thresholds if, in an open procedure, only one tender is received. The procurement proceeding need not be repeated more than once, and the obligation may be waived for particularly compelling reasons. Furthermore, where the contracting authority has conducted a market consultation or divided the procurement into lots, the obligation to suspend the procurement procedure does not apply. - Remedies (Section 154).
Finally, the amendments expand the availability of certain remedies in relation to works contracts. Prior to the amendment, the Market Court could impose an ineffectiveness sanction, a penalty payment, or shorten the duration of a contract only where the value of the works exceeded the relevant EU threshold (currently EUR 5,404,000). Following the amendment, these remedies will also be available in respect of works contracts exceeding the substantially lower national threshold (currently EUR 150,000).