19/04/2012

This update contains brief details of recent key developments relevant to those involved in procurement work.

If you have been forwarded this update by a colleague and would like to receive it direct please email Claire Booth.

All links are correct at the date of publication.

In this update:

Cabinet Office Procurement Policy Notes

Procurement Policy Note 01/12 – Use of Pre-Qualification Questionnaires
Requires all Central Government departments, their Executive Agencies and Non Departmental Bodies to adopt the revised standard Pre Qualification Questionnaire (PQQ) core questions in procurements where a PQQ is deemed appropriate. It also provides clarity on when the use of PQQ is not permitted, and the use of performance bonds in framework agreements. The Annex sets out the mandatory PQQ core questions. (10 February 2012)

Procurement Policy Note 02/12  - Guidance on ICT contracts less than £100m
Sets out Government policy on the presumption that individual ICT contracts or projects should be less than £100m lifetime cost. It complements the Government’s new approach to ICT procurement announced on 9 March 2012: In future, government IT contracts will be more flexible, starting with two areas (application software and infrastructure IT). The Government is introducing set breakpoints in IT contracts so there is less money locked into large lengthy contracts. The Government will look to disaggregate future contracts and deliver more flexible, cheaper solutions. The guidance takes effect from 1 April 2012 and applies to all central government departments, their agencies and non departmental public bodies. (30 March 2012)

Procurement Policy Note 03/12 - European legislative proposal on Third Country Access to the EU Public Procurement Market
Announces that the European Commission has published a draft new EU Regulation, which would enable the EU to close its markets to those countries whose markets are not reciprocally opened. The aim of the instrument is to give the Commission extra leverage in international trade negotiations. For more information, see below. (5 April 2012)

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Policy and guidance

Cabinet Office: Making Government business more accessible to SMEs – One year on
This report sets out progress with the Government’s new approach on enabling more SMEs to tender for government procurements. It shows that the amount of business going to SMEs across central government is on track to double from 6.5% to 13.7% by the end of the financial year.
The Cabinet office has also announced further measures to support SMEs to win Government business, including: 

  • A new approach to IT contracts, with set breakpoints so there is less money locked into large lengthy contracts. The Government will look to disaggregate future contracts and deliver flexible, cheaper solutions; 
  • Greater transparency: Departments will be judged by smaller businesses and given a star rating to show how effective they are at working with smaller players; and 
  • Prompter payment for SMEs: the Government is exploring new ways of ensuring that SMEs within the supply chain receive payment at the same time as the prime suppliers, including rolling out Project Bank Accounts.

(9 March 2012)

Procurement Lawyers’ Association: The use of framework agreements in public procurement
This paper aims to clarify some areas of legal uncertainty in relation to framework agreements and assist in the development of best practice in the use of framework agreements in public procurement, thereby promoting effective and fair competition for public contracts. It warns of legal uncertainty, ambiguities and confusion in relation to the use of framework agreements. (29 March 2012)

LGA: EU proposals for procurement reform – LGA response
On 20 December 2011 the European Commission published new draft Procurement Directives which will replace the existing Public Sector and Utilities Directives and introduce a new Directive, making important changes to the way councils procure supplies, services, and works. The new legislation is planned to come into force on 30 June 2014. This document gives an overview of the main measures which will affect local authorities and the LGA’s view following consultation. It pushes for a simplified and more flexible public procurement regime at EU level which minimises new burdens on councils and which reduces the risk of legal challenge. (8 March 2012)

Cabinet Office: Open Public Services 2012
 This update sets out what has been achieved in the eight months since the publication of the Open Public Service White Paper in Summer 2011. It details action that the Government has already taken across a whole range of public services including education, welfare, health and local government, as well as the opening up of data and greater transparency, and the transformation of digital services. It also focuses on the next stages, emphasising the importance of ensuring the quality of public services continues to improve whilst meeting the Government’s tough targets on financial spending. (29 March 2012)

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Competition Commission: Local bus services market investigation
The Commission has published the final report of its investigation into the local bus industry, made under s.131 of the Enterprise Act 2002. It identifies a number of factors that restrict entry and expansion into local areas by rivals and otherwise stifle competition, and outlines a package of measures to tackle these factors and open markets up in future. The Commission concludes that there are four features of local bus markets which mean that effective head-to-head competition is uncommon and which limit the effectiveness of potential competition and new entry, namely: 

  • the existence of: high levels of concentration; 
  • barriers to entry and expansion; 
  • customer conduct in deciding which bus to catch; and 
  • operator conduct by which operators avoid competing with other operators in ‘Core Territories’ (certain parts of an operator’s network which it regards as its ‘own’ territory) leading to geographic market segregation.

It recommends a package of remedies, including market-opening measures to reduce barriers to entry and expansion; measures to promote competition in relation to the tendering of contracts for supported services; and recommendations about the wider policy and regulatory environment, including emphasising compliance with and effective enforcement of competition law. (21 December 2011)

Home Office: Fighting fraud locally - the Local Government Fraud Strategy
This strategy sets out how local authorities can better equip themselves to fight a range of frauds including procurement fraud.  It draws on the best practices of councils already successfully tackling fraud, offers practical anti-fraud advice and is accompanied by a set of supporting online products that councils can use to tackle fraud more aggressively. (2 April 2012)

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Legislation European Commission: Proposal for a regulation establishing rules on the access of third-country goods and services to the European Union’s internal market in public procurement and procedures supporting negotiations on access of European Union goods and services to the public procurement markets of third countries (COM(2012) 124)
Sets out the Commission's proposal for a regulation establishing rules on the access of third-country goods and services to the EU’s internal market in public procurement. This proposal is the fourth and final part of a broader package of procurement modernisation that was adopted in December 2011. The main objective of the initiative is to help open worldwide public procurement markets and to ensure that European businesses have fair access to them. It also aims to ensure that all companies (both European and non-European) are on an equal footing when it comes to competing for business in the EU's lucrative public procurement market. Key features are:

  • contracting authorities would be able to exclude tenders which have more than 50% third country content. Only applies to contracts valued at €5m or more, and any exclusion must be approved by the Commission; 
  • the Commission would have powers to restrict access to EU market where third countries do not offer reciprocal access to their own markets, including: 
    • excluding tenders which have more than 50% third country content; and/or 
    • imposing a mandatory price penalty [scale not defined] on the tender value of the third country content; and 
  • contracts awarded in breach of exclusion measures adopted by the Commission could be declared ineffective under the Remedies Directive.

Further details are set out in the Commission's External public procurement initiative - Frequently asked questions. (21 March 2012)

Public Services (Social Value) Act 2012
This Act has received Royal Assent and comes into force on a day (or days) to be appointed. The Act brings in a statutory requirement for public authorities to have regard to economic, social and environmental well-being in connection with public services contracts and for connected purposes. It aims to strengthen the social enterprise business sector and make the concept of 'social value' more relevant and important in the placement and provision of public services. Note that the Act only applies to contracts for services, not to public works or public supplies contracts. Section 1(3) states that the authority must consider how what is proposed to be procured might improve the economic, social and environmental well-being of the relevant area and how in the process of the procurement it might act with a view to securing that improvement.  Section 1(6) says that when considering these matters the authority must consider only matters that are relevant to what is proposed to be procured and in doing so the extent to which it is proportionate in all the circumstances to take those matters into account. The Act raises again the issue as to the extent to which a public body can take into consideration non-commercial factors when procuring public contracts. (8 March 2012)

For a commentary on the Act, see our article The Public Services (Social Value) Act 2012.

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Health and Social Care Act 2012
This Act has received Royal Assent. Most of the sections come into force on a day, or days, to be appointed. The Act does not change EU or UK competition and procurement legislation but creates a framework in which competition (on quality, not price) can operate, including appropriate safeguards: 

  • The Secretary of State will remain ultimately accountable for the NHS, and his duty to promote a comprehensive health service under s.1(1) of the NHS Act 2006, remains; 
  • Clinical Commissioning Groups will be directly responsible for commissioning services they consider appropriate to meet reasonable local needs, supported by the national NHS Commissioning Board; 
  • Patients will be able to choose services which best meet their needs, including from charity or independent sector providers, as long as they meet NHS costs; 
  • Monitor will be a sector specific competition regulator for healthcare, allowing it to develop a bespoke approach for health. It will be able to address abuses and restrictions that prevent competition and could lead to poorer care for patients; 
  • Providers of NHS services will be licensed and regulated by Monitor so that NHS healthcare services are operated in the best interests of patients; 
  • Monitor will regulate prices for NHS services through a national tariff.

(27 March 2012)

Bevan Brittan has published a number of Alerts on the new Act, including: 

DH: Ambition for clinically-led NHS
The Health Secretary has written to clinical commissioning groups,  NHS foundation trusts, NHS trusts and local authorities setting out what the Health and Social Care Act 2012 will mean for them and their staff. He explains there are two simple principles at the heart of the Act: that patients should share in every decision about their care and those responsible for patient care should have the "freedom and power to lead an NHS that delivers continually improving care". (3 April 2012)

Public Contracts (Scotland) Regulations 2012 (SSI 2012/88)
These regulations, which come into force on 1 May 2012, consolidate, revoke and replace SSI 2006/1 and its amending regulations. (16 March 2012)

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Cases – EU

Commission v Germany (C-574/10): Contracts for architectural services – requirement to aggregate contracts for different phases of the same project
The case concerned the award by the Municipality of Niedernhausen of a number of contracts for architectural services. The contracts related to a refurbishment project of a public building. For budgetary purposes the project was divided into a number of annual phases. Prior to the refurbishment project the Municipality appointed a local architectural practice to undertake a condition survey and prepare an estimate of the cost of the project. That same architectural practice was then awarded a series of contracts over the refurbishment period for the architectural services relating to all phases of the works. Each of these contracts was under the relevant financial threshold for EU contracts but the total value of the contracts was well in excess of that threshold.
The Court of Justice of the European Union (ECJ) rejected Germany’s arguments that it was legitimate to regard each of the contracts awarded as separate, stand alone contracts on the grounds either that they were linked to separate phases of the works or that the nature of the architectural services required at each stage was different.
The ECJ took a functional approach and was of the view that in this case the services related to a single global refurbishment project. The value of the services should be aggregated to reflect the total payment for architectural services in relation to the project as a whole. The total value was over the relevant financial threshold and so the direct award of the contracts without an EU tender process was in breach of the procurement Directive.
The ECJ also rejected an argument that an inability to split contracts in this manner discriminated against SMEs, pointing out that if this is of concern then it is open to contracting authorities to divide the contract into lots and advertise it in that manner. (15 March 2012)

SAG ELV Slovensko a.s. v Úrad pre verejné obstarávanie (C-599/10): Abnormally low tenders
In this reference for a preliminary ruling the ECJ considered the provisions of the procurement law of the Slovak Republic in relation to abnormally low tenders. The ECJ confirmed that member states are required to include in their procurement legislation provisions obliging contracting authorities to make enquiries in writing of tenderers submitting abnormally low tenders  and that contracting authorities must make such enquiries in this situation. [Note: in the UK, this provision is at Reg 30 of the Public Contracts Regulations 2006]. The ECJ also confirmed that the specific provisions of the Slovak Law giving discretion to contracting authorities in relation to the subsequent consideration of abnormally low tenders were permissible. (29 March 2012)

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Cases – UK

JBW Ltd v Ministry of Justice [2012] EWCA Civ 8 (CA)
The court held that the procurement of bailiff services by the Ministry of Justice was a service concession and therefore fell outside the scope of the Public Contracts Regulations 2006. (16 January 2012)

Alstom Transport v Eurostar International Ltd [2012] EWHC 28 (Ch) (Ch D)
AT was an unsuccessful tenderer in EIL’s procurement of a contract for the design, supply and maintenance of a new generation of trains. AT supplied the trains currently used by EIL but in October 2010, EIL announced that it was awarding the contract to S. AT challenged the award, claiming that the tender process violated the EU procurement regime. There was first a trial of preliminary issues to determine whether that regime applied.
The court held that the procurement regime did not apply as EIL was not a utility for the purposes of the Utilities Contracts Regulations 2006 nor was it a contracting authority for the purposes of the Public Contracts Regulations 2006. The earlier Utilities Directives gave a powerful indication that the legislation was not intended to cover the operation of a service on the rail infrastructure without more. The public procurement regime was designed to apply in circumstances where undertakings faced no, or only limited, competition. The provision or operation of railway infrastructure came within the scope of the concept of a network, but an operator of a rail service alone that was conducted free from such constraints was not  an operator of a network - such unrestricted commercial use of the infrastructure did not have the character of being protected from competition as competing operators could use the same infrastructure. EIL did not satisfy the requirement in the Utilities Directive 2004/17 to operate a network and so was not a utility for the purposes of the Utilities Regulations. In addition, at the time of the procurement procedure EIL was of a commercial character in the sense in which that expression was used in the Directives. It was therefore not a "body governed by public law" and so did not satisfy the criteria for being a "contracting authority". (20 January 2012)

R (Unison) v NHS Wiltshire PCT; NHS Shared Business Services Ltd and Secretary of State for Health (Interested Parties) [2012] EWHC 624 (Admin) (Admin Ct)
Unison applied for leave to apply for judicial review of the decision by ten PCTs to enter into contracts with NHS Shared Business Services Ltd for the provision of family health services without participating in a competitive tendering process. The PCTs claimed to be able to call off the contracts from a framework, but Unison disputed the lawfulness of this. The PCTs argued against permission being granted on the basis that Unison did not have the relevant standing, and on limitation grounds.
Permission was refused on these two grounds. The court found that Unison did not have the relevant standing because it could not on the facts bring itself within either of the two tests of standing set out in R (Chandler) v Secretary of State for Children, Schools and Families [2009] EWCA Civ 1011: 

  1. it couldn't show that performance of a competitive tendering procedure might have led to a different outcome that would have had a direct impact on it or its members; and 
  2. it couldn't show that any departure by the PCTs from their public law duties to comply with the Public Contracts Regulations was sufficiently grave to justify granting a public law remedy in any event.

On the issue of limitation, the court held that time ran from the date the final decision had been taken to enter into the proposed contracts. On the facts, this was more than three months before proceedings had been commenced. The judge also held that the granting of permission would be detrimental to good administration. (15 March 2012)

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R (Midlands Co-operative Society Ltd) v Birmingham City Council; Tesco Stores Ltd (Interested Party) [2012] EWHC 620 (Admin) (Admin Ct)
The Co-op  applied for judicial review of the Council’s decision to enter into a contract to sell land comprising an indoor bowling and community centre to Tesco. The council issued an invitation to tender to both Tesco and the Co-op for a development agreement for the site. The agreement contained a condition that both the community centre and the indoor bowls facility would be replaced. The contract was then awarded to Tesco. Following legal advice, that tender was terminated; a second tender process was also terminated and a there was then a third open tender process. In the meantime, the Council exchanged contracts with Tesco to sell the community centre site to Tesco; it also entered into an overage agreement with Tesco. The Co-op contended that the contract for the sale and purchase of the community facility imposed an obligation on Tesco to carry out works as specified by the Council, so that the arrangements amounted to a "public works contract" to which the Public Contract Regulations applied. It also claimed that the disposal by the Council to Tesco of its interests in the community facility on the terms agreed would breach the Council's duty under s.123(2) of the Local Government Act 1972 not to dispose of land for a consideration less than the best that can reasonably be obtained.
The court held, refusing the application, that (1) to fall within the scope of a "public works contract" and thereby be subject to the 2006 Regulations, the arrangements must include a legally enforceable obligation to perform relevant construction works. This contract did not include any such obligation on Tesco. In considering whether the procurement provisions applied, one must have look at the whole of the arrangements between the contracting authority and the contractor; and, in particular, whether there was in reality a multi-stage award procedure which included an obligation to perform works and was consequently subject to the procurement rules. Applying Helmut Müller GmbH v Bundesanstalt für Immobilienaufgaben (C-451/08) and guidance in the OGC’s Information Note 12/10, it was insufficient that the authority merely intended to, or was very likely to, enter into a works contract with the contractor, short of a formal, legally enforceable commitment. The arrangements between the Council and Tesco had to be looked at as a whole – but the aggregation of elements that might make it more likely that Tesco would be the developer with an obligation to perform works under a relevant Section 106 agreement could never, of itself, create a legal obligation to perform works which, on a proper analysis, was simply not there; (2) on the basis of all the evidence, it could not be said that the price obtained from Tesco was not the best consideration reasonably obtainable for the community facility. (16 March 2012)

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