Part 13: General Schedule 2: Exempted contracts Part 1 - Counterparty Exempted Contracts Vertical arrangements
Paragraph 2 exempts quasi "in-house awards" between a contracting authority (or group of contracting authorities) and an organisation that is connected "vertically" with the contracting authority (or authorities), i.e. a body which has a separate legal personality but is under the control of the contracting authority (or authorities). A typical example may be a contract between a trading company set up and controlled by a local authority (or its subsidiary authority) and that local authority.
	Sub-paragraph (2) sets out the tests to ascertain whether a person is "controlled" by the contracting authority (or group of contracting authorities). These tests include a requirement that more than 80% of the activities carried out by the controlled person are for or on behalf of the contracting authority (or authorities) or other persons that are controlled by the contracting authority (or authorities).
	Sub-paragraph (3) confirms the body must be owned wholly by a public authority (or authorities).
	Sub-paragraph (4) sets out the meaning of "parent undertaking" (and parent undertakings) and refers to the definition within the Companies Act 2006, amended to include any "person" ("person" is as defined in the Interpretation Act 1978).
	Sub-paragraph (5) clarifies that being a director, member or officer alone does not constitute "decisive influence" (as referred to in subsection (2)(b)); other factors must also exist in order for there to be a "decisive influence".
	Sub-paragraph (6) provides for an appropriate authority to make regulations that set out how to calculate the percentage of activities referred to in sub-paragraph (2)(c).
	Sub-paragraph (7) explains that for joint control, one representative may represent more than one contracting authority on the controlled person’s board, or equivalent decision-making body.
	Sub-paragraph (8) explains that the exemption in this paragraph does not apply to public undertakings or private utilities. (A public undertaking or private utility may instead use the exemption at paragraph 32 of this Schedule.)