Minor contracts and commissions to in-house entities: how to structure the administrative file in local councils and municipal companies

In a small local council, minor contracts are part of day-to-day business. And day-to-day business is where objections from the Internal Audit Office accumulate. The good news is that Act 9/2017, on Public Sector Contracts, states with considerable precision what the administrative file must contain. Structuring it properly is almost always a matter of method.

1. Minor contract: thresholds and administrative file (art. 118 LCSP)

The starting point is the threshold: «Se consideran contratos menores los contratos de valor estimado inferior a 40.000 euros, cuando se trate de contratos de obras, o a 15.000 euros, cuando se trate de contratos de suministro o de servicios» [Contracts with an estimated value below 40.000 euros, in the case of works contracts, or below 15.000 euros, in the case of supply or service contracts, are considered minor contracts].

What is most often overlooked is the minimum content of the file. The law requires that «la tramitación del expediente exigirá la emisión de un informe del órgano de contratación justificando de manera motivada la necesidad del contrato y que no se está alterando su objeto con el fin de evitar la aplicación de los umbrales descritos en el apartado anterior» [processing the file shall require the issuance of a report by the contracting authority providing a reasoned justification for the need for the contract and confirming that its subject matter is not being altered in order to avoid the application of the thresholds described in the preceding paragraph].

And it adds: «se requerirá la aprobación del gasto y la incorporación al mismo de la factura correspondiente» [approval of the expenditure and the inclusion of the corresponding invoice in the file shall be required].

Administrative file checklist:

1. Reasoned report justifying the need.
2. Express justification that the subject matter has not been artificially split.
3. Approval of the expenditure.
4. Invoice included in the file.
5. For works, a budget and, where applicable, a project and supervision report.
6. Publication in the manner provided for in article 63.4.

2. Commission to an in-house entity: when it is not a contract (art. 32 LCSP)

Many local authorities rely on their municipal companies or instrumental bodies. The LCSP permits this, subject to a clear condition: «El encargo que cumpla dichos requisitos no tendrá la consideración de contrato» [A commission that meets these requirements shall not be considered a contract].

Among those requirements, there is one that should be measured each year: «Que más del 80 por ciento de las actividades del ente destinatario del encargo se lleven a cabo en el ejercicio de los cometidos que le han sido confiados por el poder adjudicador que hace el encargo» [That more than 80 per cent of the activities of the entity receiving the commission are carried out in the performance of the tasks entrusted to it by the contracting authority making the commission]. That percentage is not presumed: it must be substantiated with data.

3. Municipal companies: the Book Three regime (art. 318 LCSP)

When the entity is a contracting authority that does not hold the status of a public administration, its contracts are governed by Title I of Book Three. For the lowest amounts, article 318.a) provides that contracts «podrán adjudicarse directamente a cualquier empresario con capacidad de obrar y que cuente con la habilitación profesional necesaria para realizar la prestación objeto del contrato» [may be awarded directly to any contractor with legal capacity to act and holding the necessary professional qualification to perform the service or work covered by the contract].

Before applying this regime, it is advisable to place on record in the file the legal nature of the entity: that is the first point any subsequent audit will review.

The method: every file backed by its legal source

A well-prepared file answers three questions: which rule supports it, which document proves it and who has reviewed it. If every item in the file bears its statutory article and its signature, subsequent auditing ceases to be a surprise.

Frequently asked questions

What is the threshold for a minor contract?

An estimated value below 40.000 euros for works and below 15.000 euros for supplies or services (art. 118.1 LCSP).

Which documents are required in a minor contract file?

A reasoned report of need justifying that the subject matter has not been altered to circumvent the thresholds, the approval of the expenditure and the invoice. For works, the budget is also required (art. 118 LCSP).

Is a commission to an in-house entity a contract?

No, provided it meets the requirements of article 32 LCSP, including that more than 80 % of the entity's activity is dedicated to the tasks entrusted to it by the contracting authority.

Which regime do municipal companies follow?

If they are contracting authorities without the status of a public administration, that of Title I of Book Three of the LCSP (arts. 316 et seq.).

Official sources

Do you work in a council clerk's office, internal audit department or municipal company? See how to structure a file with its legal source.