Procurement Update - June 2009

This update contains brief details of recent news, legislation, cases and other developments relevant to those involved in procurement work.

30/06/2009

This update contains brief details of recent news, legislation, cases and other 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 Sam Worrell.

All links are correct at the date of publication.

In this update:

Policy and guidance

OGC: Procurement Policy Note 03/09 – The need to ensure published contract notices are accurate and cover the complete requirement.
This procurement policy note stresses the importance of complete and accurate completion of OJEU notices, focusing on complex wide-ranging contracts. The note is issued in the context of infraction proceedings against the UK because a contract notice for a strategic service delivery partner did not include all of the services actually included in the final contract. The OGC stresses the need to be accurate and describe the totality of the likely requirement (including potential requirements even if they are uncertain). Where this is some uncertainty it recommends use of the broader or generic descriptions and high level CPV codes. It also suggests that once the notice is published contracting authorities check the heading inserted by the OJEU Publications Office to ensure that it is accurate and not misleading so that they have the chance to correct this. (8 April 2009)

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OGC/DIUS: Promoting skills through public procurement
This document follows on from a commitment in the 2008 Pre-Budget Report that whenever Government Departments or Agencies let construction contracts they would consider making it a requirement that successful contractors have apprentices as an identified proportion of their workforce. The Government also wants to work with local authorities and RDAs to share and embed best practice about how to make greater use of procurement processes and planning powers to deliver skills and training objectives. This guidance document draws on real examples and case studies to describe how skills training and apprenticeships can be promoted throughout the procurement process, from pre-procurement to contract management. The Government looks to all procurement professionals in Government to take these opportunities, in whatever ways are appropriate for the particular procurement exercises they are handling. This includes working with existing contractors on a voluntary basis post-contract award to encourage them to provide training and apprenticeship opportunities for their project workforce. (17 April 2009)  

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HM Treasury: Operational Efficiency Programme final report
Sets out the findings from a year-long programme that examined operational spending in the public sector. The five senior external advisers have identified a total of £15bn annual savings from back office operations and IT, collaborative procurement, asset management and sales, property and local incentives and empowerment. Their assessment is that around £6bn of these will be delivered as part of plans in the current spending review period, contributing to the £35bn efficiency target, with the rest being delivered by the end of the next spending period. The report also recommends structures and tools to help organisations achieve savings and improved accountability and performance management to encourage greater value for money throughout the public sector. (21 April 2009)  
HM Treasury has also published separate reports on three of the Programme's five work strands:

  • Collaborative procurement: analyses collaborative procurement practices both within central government and in the wider public sector;
  • Property: looks at efficiency in the use of public sector property;
  • Back office operations and IT: covers the potential for significant savings from public sector expenditure on back office operations and information technology. 

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DCLG: Greater efficiencies in the public sector
Announces the 13 areas chosen to pilot the new Total Places initiative to identify how local public agencies can better work together to deliver front-line services more efficiently. The initiative, announced in the Budget, will map flows of public spending in local areas and make links between services to identify where public money can be spent more effectively. This forms part of Sir Michael Bichard's work on the Operational Efficiency Programme. (23 April 2009)

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OGC: Requirement to distinguish between "selection" and "award" stages of a public procurement and to give suppliers complete information about the criteria used in both stages (Action Note 04/09)
New guidance highlighting important distinctions between the two stages. (29 April 2009)

OGC: 2nd consultation on implementing the new Remedies Directive (includes draft regulations)
In Autumn 2008 OGC launched its first consultation on the transposition of the Remedies Directive 2007/66 that sought opinions on the approach to the Directive's implementation, in particular on various optional elements. This second consultation seeks views on draft Regulations, some other key implementation issues, and a second draft of a Regulatory Impact Assessment. The documents also include tracked amendments to Regulation 32, an entire redraft of Part 9 of the Public Contracts Regulations 2006, and a summary of the results of the first consultation. Comments are required by 24 July 2009. (30 April 2009)  

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OGC: Procurement policy note - EU statistics on public procurement: annual return for calendar year 2008 - Action note 06/09
Requests contracting authorities to submit annual statistical returns on public procurement contracts awarded in 2008, in accordance with reg.40 of the Public Contracts Regulations. Contracting authorities that are not Government departments must submit their returns to the relevant parent body for onward transmission to OGC. The annual returns must be submitted by 31 July 2009. (1 May 2009)

^ back to the topEuropean Commission: Late payment in commercial transactions
The Commission has adopted a new proposal containing further measures to combat late payment in commercial transactions. It suggests a new policy approach to tackle the situation on late payments and proposes substantial changes to the Late Payment Directive 2000/35. The Commission suggests that public authorities should lead by example and should – as a rule – pay their bills within 30 days. In parallel, the Commission commits itself to speed up payment of goods and services so to fully respect the targets for paying bills and, in a number of cases, even shortening payment times to under the current legal period. The proposed changes reflect the importance of timely payments to businesses, and especially to SME's:

  • As a rule public authorities should pay within 30 days otherwise they will have to pay interest, a compensation for recovery costs and a flat-rate compensation of 5% of the amount due, which kicks in from day 1 of the delay. In duly justified cases the payment periods can be longer.
  • The freedom to contract will be respected in business to business relations, however in case of delay businesses will be entitled to claim late payment interest and a compensation of recovery costs.
  • The rules on grossly unfair contracts are tightened.

The text of the proposal (COM(2009) 126 final) is on the Commission website.

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Audit Commission: Valuable lessons - Improving economy and efficiency in schools
This report examines how schools could save £400m a year if they bought equipment and services more sensibly. The report concludes that the Commission can’t be sure whether the taxpayer is getting value for money. It says that school inspections focused on educational standards and what teachers do, which is necessary, but pay less attention to economy and efficiency. Councils also pay insufficient attention to value for money in their support of schools. Many school governors should be tougher in seeking value for the public purse. (30 June 2009)

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Cases - UK

Brent LBC v Risk Management Partners Ltd; London Authorities Mutual Ltd and Harrow LBC (Interested Parties) [2009] EWCA Civ 490 (CA)
Brent appealed against the High Court's decision that its award of an insurance contract to LAML breached the the Public Contracts Regulations 2006. A group of London borough councils, including Brent, decided to participate in establishing a new mutual insurance company, LAML, that would be controlled by, and run for the benefit of, the participating authorities. Brent issued an invitation to tender for the insurance contract but abandoned it prior to the award; instead it directly awarded the contract to LAML, which had not participated in the procurement exercise.  RMP, a rival insurer who had tendered for the insurance contract, claimed damages for breach of Brent's obligation to comply with the procurement regime. Brent contended that the Regulations did not apply because the degree of control exercised over LAML by its members meant that the contract fell within the in-house exemption as set out in Teckal srl v Comune di Viano (C107/98).
The Court of Appeal held, dismissing the appeal, that the Teckal principles did apply to contracts covered by the 2006 Regulations and the first condition of that exemption could be satisfied by the joint control of a group of local authorities. However, while arrangements between participating authorities could in principle come within the exemption, here LAML could not be regarded as a department of each of the participating local authorities as the nature of the business, and the possibly differing interests of different authorities and affiliates, were inconsistent with the necessary local authority control and it was difficult to see how LAML could operate effectively unless its board had considerable freedom to manage its insurance business. In respect of R's claim for damages for an actual breach, time did not begin to run at a date earlier than the dates when Brent abandoned the tendering process and made payments to LAML, even if RMP could earlier have made an application for interim relief. If it was required an extension of time would be justified. (9 June 2009)
For a discussion of the implications of this decision for contacting authorities, see our Procurement Alert: Court of Appeal rules on in-house awards and the Teckal exemption.

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Part B contracts and the standstill obligation
In Federal Security Services Ltd v Chief Constable for the Police Service of Northern Ireland [2009] NICh 3, the Northern Ireland High Court set aside a contract award for Part B services and granted an injunction to restrain its implementation, even though such contracts are exempt from the standstill period obligation. The judge held that a standstill period is required for some Part B services contracts in exceptional circumstances under the general principles of EC law. This Procurement Alert looks at the implications of this decision for all those procuring Part B services, which include health, education and legal services.

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HM Revenue & Customs v Isle of Wight Council (Unreported) (Ch D, Rimer J)
HMRC Customs appealed against the VAT and Duties Tribunal's decision that the local authority was a non-taxable person for the purpose of assessing VAT on revenue derived from the provision of off-road parking. The local authority had collected revenue from the provision of off-street parking facilities similar to services provided by the private sector. The local authority contended that it was not a taxable person for VAT purposes under Directive 77/388 art.4(5) in respect of supplies made in its capacity as a public body. HMRC submitted that this would result in a significant distortion of competition. Following a reference to the ECJ, the only issue that remained was whether the court should answer the substantive issue in relation to the payment of VAT without remitting the case for a rehearing. HMRC submitted that, following the decision of the ECJ as to what would constitute a real possibility of a distortion to competition, there was a presumption that the different tax treatment of local authorities would give rise to a competition distortion and so the court should dispose of the substantive issue in its favour. The local authority argued that the existence of such a presumption was not supported by any explicit reference in the ECJ's determination.
The court held, allowing HMRC's appeal, that the ECJ's determination did not give rise to any presumption that the treatment of local authorities as non-taxable persons would give rise to a distortion of competition. The ECJ's determination was that art.4.5.2 should be interpreted so as to do as little damage to the rule of fiscal neutrality as possible without any explicit mention of the presumption contended for by Customs. In any event, the ECJ's opinion of what would and would not lead to a potential distortion in competition clearly required a factual investigation, which was outside the court's remit. The matter would be returned to the VAT and Duties Tribunal for reconsideration. (11 March 2009)
The judgment is available on Lawtel (password required).

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JB Leadbitter & Co Ltd v Devon CC [2009] EWHC 930 (Ch) (Ch D)
L, a construction company, claimed that its tender to participate in a framework agreement under which construction projects could be procured by local public bodies was incorrectly excluded from the procurement process undertaken by the local authority. The tender process was governed by the Public Contracts Regulations 2006. L realised after submitting its tender electronically that it had forgotten to attach the required case studies. It tried to upload them on to the secure portal, but was unable to do so. It telephoned the helpdesk to explain the situation, and finally e-mailed the case studies to the local authority after the deadline had passed. The local authority informed L that it would not consider its tender. L later discovered that another tenderer, M, had been advised by the local authority to supply a back-up hard copy of its completed tender in a sealed envelope when M had been unsure whether it had correctly uploaded the case studies. L sought an injunction requiring the local authority to consider its tender, or alternatively damages for the loss of the chance of being selected as a contractor under the framework agreement.
The court held, dismissing L's claim, that the decision to reject L's tender was well within the local authority's margin of discretion. The relevant issue was whether the rules had been drawn and applied in ways that were transparent and ensured equal and non-discriminatory treatment that was proportionate; provided those requirements were satisfied, L could not object that its tender was excluded from consideration. M had in fact correctly submitted a completed tender and did not need to rely on the hard copy versions; in addition, L's tender was substantially incomplete. The exception in the invitation to tender that provided for the rectification of errors after the deadline did not obviate the need to submit a complete tender nor did it provide a means by which tenderers could supply essential documents after the deadline. The ITT made it clear that once the tender had been submitted, a tenderer was not able to supply missing material before the deadline, and the rules applied equally to all tenderers. A procurement process required a deadline for the submission of tenders, and a deadline was a deadline. (1 May 2009)

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First Real Estates (UK) Ltd v Birmingham City Council [2009] EWHC 817 (Admin) (Admin Ct)
F had been formed with the object of supplying to BCC properties to be used as accommodation for homeless people by way of licence agreements. F subsequently became BCC's biggest supplier of temporary accommodation. BCC received numerous complaints about the standard of the property provided by F and issues arose as to the safety of gas appliances. A meeting was arranged to resolve the issues, where F was informed that its services were being terminated on seven days' notice. F applied for judicial review of BCC's decision, and the issue arose as to whether BCC was exercising a public function when deciding to terminate the arrangements.
The court held, refusing F's application, that there had never been an over-arching agreement between BCC and F; rather, F was successful in procuring from BCC its agreement to license a series of properties, and its success was due to its ability to supply accommodation at short notice, even outside normal office hours, which led BCC to make more use of its services than it would otherwise have done. The power authorising BCC to enter into individual licence agreements with F was founded in private law as it was a contractual power. In principle it was not right to permit a claimant suing a public body for breach of contract to invoke public law. A decision to remove a contractor from an approved list was capable of being challenged by judicial review as a public authority's power to maintain a list of approved contractors was derived from public law; however, F had never been such an agent and the contested decision was not one that had the effect of removing from F a public status that it had previously enjoyed. BCC's conduct had not created a legitimate expectation that it would continue to take properties offered to it by F. (1 May 2009)

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Camden LBC v Makers UK Ltd [2009] EWHC 605 (TCC) (T&CCt)
MUK, a building contractor, had been employed by the local authority under a contract. The local authority alleged that MUK was in default of its contractual obligations and purported to terminate the contract. An adjudicator held that the authority had incorrectly served the termination notice, and had consequently repudiated the contract. The authority was concerned that if it was ultimately found that it did terminate the contract lawfully, any net sum due back to it would be irrecoverable by reason of M's poor financial position, and it commenced proceedings to establish that it had lawfully terminated the contract and to recover the net amount claimed to be due as a consequence of the termination. MUK failed to file its defence within time, and the local authority successfully applied for judgment in default of defence. MUK applied to set aside the judgment. The authority submitted that, given MUK's financial position, the court should only set aside the judgment on condition that MUK did not institute further adjudications covering issues addressed in the proceedings, and that MUK gave security for the costs likely to be incurred by it in defending MUK's counterclaim.
The court held that it was not appropriate to impose conditions preventing a company from pursuing its statutory right to institute further adjudications in proceedings against a local authority, despite the likelihood of a stay on any enforcement of an adjudication decision obtained by MUK by reason of its poor financial position. The right to adjudicate was a commercial lever and it was generally not for the court to interfere in the commercial relationship between parties. (27 March 2009)  

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Cases - EU

Commission v Federal Republic of Germany (C480/06) (ECJ)
The City of Hamburg and four other local contracting authorities entered into a 20 year cooperation agreement in respect of waste disposal under which Hamburg agreed to reserve a specified tonnage of waste incineration capacity for the four local authorities at a new waste treatment facility which it proposed to procure. Payments were to be made by the four local authorities to Hamburg for the disposal services using a pricing formula. The local authorities also agreed to divert waste away from the treatment facility in the event of technical problems with the facility as well as agreeing various other aspects of joint working. Hamburg then entered into a separate contract with the operator of the new waste treatment facility which was due to be completed by 1999. The Commission acknowledged that it was already established law under the Teckal exception that, had the contracting authorities jointly set up a separate legal body under their ownership and control which was then given the task of dealing with the waste disposal function, the arrangements between the company and the authorities would not fall under the public procurement rules. It argued, however, that in the absence of such a body for inter-municipal cooperation, the 1995 contract between the authorities should be regarded as the four authorities procuring waste disposal services from the City of Hamburg, as a public services contract and so should have been the subject of a competitive call for tender under the procurement rules.
The court rejected the Commission’s arguments and confirmed that there was no obligation on a public authority to use a particular legal form for setting up cooperation arrangements.  It agreed that a contract between contracting authorities could be a contract to which the EU procurement rules applied but that in this case the contract was not caught. This contract established cooperation between local authorities with the aim of ensuring that a public task which they all have to perform is carried out; it was an agreement relating to inter-municipal cooperation and not a public services contract. Critically, it set the scene for Hamburg to undertake a competitive procurement of waste disposal facilities on behalf of all five authorities and it was not intended to avoid competition in that procurement process. (9 June 2009) 

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Public procurement: Commission refers Ireland to Court over public supply contract for animal identification tags
The European Commission has announced that it has decided to refer Ireland to the ECJ over the award procedure by the Department of Agriculture and Food for a public supply contract for animal identification tags. The Commission considers that Ireland breached the procurement rules as it used criteria which related to the tenderers' ability to perform the supplies contract in question as award criteria.

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Competition decisions

NHSWM Competition Panel: Case brought by Echotech Ltd against Worcestershire PCT
This decision concerned the use of an Any Willing Provider (AWP) procurement in Worcestershire. The procurement was for echocardiography within a target geography, priced on the basis of a locally-defined tariff.  An unsuccessful bidder contested the basis of the contract award, alleging that the inclusion of an LLP that  was 50 per cent owned by a local GP consortium as an AWP provider, prohibited a level playing field as the "gatekeepers" (the referring GPs) were likely to benefit financially from referring "in-house" and that by fixing the price of reimbursement for each test (via AWP) they removed any scope for competitive pricing. It believed this served to distort the market and lock out competition, citing the NHS Principles and Rules for Cooperation and Competition.  The bidder was not satisfied with the PCT’s response and so referred its complaint for dispute resolution by the SHA. The SHA Competition Panel found that Principle 7 (transparency and fairness of payment regimes) and Principle 10 (vertical integration) had been breached, and it recommended that NHS West Midlands agree with the PCT, and if no agreement was forthcoming, to direct the PCT pursuant to s.20 of the National Health Service Act 2006, to exercise the termination rights contained in the contract.
(2 June 2009)
See Bevan Brittan's commentary on this decision: Cooperation and Competition panel ruling on AWP procurement.

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News

OGC: OGCbuying.solutions changes name to Buying Solutions
Announces the rebranding of OGCbuying.solutions. The new name is intended to clarify the difference between the respective roles of Buying Solutions and OGC. Buying Solutions remains an Executive Agency of OGC and will continue to work closely with them. It has also withdrawn the Catalist and Managed Services sub-brands in order to focus on developing Buying Solutions as a single, unified brand. (6 April 2009) 

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HM Court Service: Regional venues for the Administrative Court
Announces that from 21 April 2009 it is possible to issue most Administrative Court proceedings at the District Registry of the High Court at Birmingham, Cardiff, Leeds or Manchester as well as at the Royal Courts of Justice in London.
Bevan Brittan has issued a Judicial Review Alert that explains the effect of this change for public authority litigants.  

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MoJ: The costs of corruption
The Justice Secretary Jack Straw gave a speech at the Fifth European Forum on Anti-corruption on 23 June in which he discussed the Government's plans to improve the legal framework relating to bribery and corruption, improvement in enforcement, and the need for businesses to undergo cultural change in order to resist bribes and to report allegations of corruption.
The Government's draft legislative programme includes proposals for a Bribery Bill that will modernise the law on bribery to support the highest ethical standards across business and public life and to equip prosecutors and courts to deal effectively with bribery. It will be based on the draft Bill that was published in March 2009. 

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European Commission: Public procurement: Commission sends formal request to United Kingdom over award of contract for development of land in city of York
The European Commission has decided to send a formal request to the UK concerning the award of a public works concession contract by the City of York Council relating to the residential development of a piece of land in Osbaldwick that the council awarded without having carried out a tendering process. The UK accepts that the development agreement does constitute a works concession which should have been tendered out in accordance with EU rules, but no measures have been introduced to end this infringement nor have any sufficient and adequate measures have been introduced to ensure that the award of future land development agreements will be compliant with the applicable EU rules.

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The Buying Solutions framework agreement allows customers throughout the public sector to place orders with Bevan Brittan LLP under standard terms and conditions of the agreement. We are appointed to the Full Commercial Panel and can therefore provide advice on a wide range of legal services including: 

  • IT
  • Property and Estates
  • Employment and Pensions
  • Intellectual Property
  • PPP/PFI projects
  • Competition law
  • Telecommunications & ecommerce
  • Construction
  • Corporate & Finance
  • Public Procurement
  • Outsourcing
  • Regulatory law 

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