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: 

Policy and guidance

PPN 09/12: Procurement Policy Note – Taking account of bidder’s past performance
This Procurement Policy Note provides guidance on how government departments, their executive agencies and non departmental public bodies are to assess minimum standards for reliability of suppliers based on their past performance. This includes the setting up of a database and a linked process for certification of suppliers confirming previous satisfactory, or unsatisfactory, service. The guidance note applies to the procurement of goods and/or services with a value in excess of £20 million. (8 November 2012)
See also Cabinet Office policy documents on strategic suppliers, below.

PPN 10/12: The Public Services (Social Value) Act 2012 – Advice for commissioners and procurers
This PPN advises commissioners and procurers on how they must follow the 2012 Act and take it into account when considering procurements of certain types of services contracts and framework agreements. (7 January 2013)
See also the Legislation – UK section and our article published in April 2012: Public Services (Social Value) Act 2012.

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DfT: Laidlaw Report – West Coast Mainline
The final report of the Laidlaw Inquiry into the collapsed InterCity West Coast competition concluded that the project failed because of an accumulation of significant errors related to inadequate planning and preparation, complex organisational structure, and a weak governance framework. The report makes useful reading for all organisations involved in tendering processes and highlights lessons to be learned about the conduct of complex tendering processes. (6 December 2012)
Bevan Brittan has published a short summary of Laidlaw’s recommendations: Laidlaw’s lessons.

The DfT's formal response commits it to implementing swiftly a series of actions that will enable it to resume the franchising programme, with the confidence of the rail industry, as soon as possible. These include: 

  • ensuring future franchise competitions are delivered at a good pace based on sound planning, a clear timeline, rigorous management, and the right quality assurance; 
  • creating a simpler and clearer structure and governance process for rail franchise competitions, including the appointment of a single director general with responsibility for all rail policy and franchising; 
  • ensuring there is the right mix of professional skills, in-house, and where necessary from professional external advisers.

The DfT has since announced that Virgin Trains will continue operating rail services on the West Coast Main Line for up to 23 months, after which the West Coast Main Line will be let under a long-term franchise. (6 December 2012) 

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DfT: The Brown review of the rail franchising programme: the Transport Secretary Patrick McLoughlin asked Richard Brown, Chairman of Eurostar, to conduct a thorough investigation into how the Government should manage its franchising programme following the cancellation of the InterCity West Coast competition last year. It follows the Laidlaw report into what went wrong with the West Coast competition (see above). The report recommends that: 

  • the Department’s capability should be strengthened to manage future franchising programmes; 
  • the bidding and evaluation process for each franchise should be strengthened and simplified; 
  • plans should be put in place to devolve more English franchises to the relevant authorities.

The review recommends that by February the Government should publish its plans for the Essex Thameside, Great Western, and the Thameslink, Southern and Great Northern franchise competitions which were put on hold last October. Until those plans have been agreed, it would be inappropriate to publish the specific recommendations about these three competitions. The Government is planning to set out a programme for future franchise competitions in the spring alongside a further statement of franchising policy in light of the Brown Review and the Transport Select Committee’s Rail 2020 report. (10 January 2013) 

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Cabinet Office: Strategic Supplier Risk Management Policy and Strategic Suppliers List
The Cabinet office has published a policy covering the risk assessment and management of strategic suppliers, to be implemented along with PPN 09/12 (see above). Strategic suppliers are those suppliers with contracts across a number of Departments whose revenue from Government exceeds £100m per annum and/or are deemed significant suppliers to Government in their sector. A current list of strategic suppliers is available from the Cabinet Office website. Strategic supplier relationships will be managed on a cross- Government basis and there will be shared collection and monitoring of information about strategic suppliers which will include assessment of under- performance and financial factors and potential designation as a “high risk” supplier. A strategic supplier designated as high risk will be required to work with the Crown Representative to agree and implement an Improvement Plan. Further consequences may include, proactive monitoring, potential reductions in existing work and withdrawal of other benefits such as high level meetings and provision of references. (8 November 2012)

OFT: A guide to the OFT's investigation procedures in competition cases
The OFT has issued updated guidance on its investigation procedures in competition cases that sets out new decision-making processes and procedural enhancements to boost the speed and robustness of Competition Act 1998 investigations and increase engagement with parties involved. (16 October 2012)

CBI: Buying a brighter future
Summarises the findings of a CBI member survey in September and October 2012, which highlights the high degree of frustration that continues to be felt by UK businesses towards procurement processes. Issues raised by businesses in the survey include: the need for bid documents to be simplified and standardised and the number of bid portals to be cut; pipelines are welcomed but all aspects of them must be developed and their use made more widespread; and individual departments can drive reform further by keeping to deadlines and publishing procurement performance metrics. (12 November 2012)

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Audit Commission: Protecting the public purse 2012 – Fighting fraud against local government
The Audit Commission's annual survey of English councils reports that councils are targeting their investigative resources more efficiently and effectively, detecting more than 124,000 cases of fraud in 2011/12 totalling £179m; but despite these detection rates, more can still be done. The report includes commentary on the issue of fraud in local authority public procurement – the National Fraud Office estimates that councils lose about £890m each year through procurement fraud, the second highest loss to fraud in local government after housing fraud. The report highlights the key areas of fraudulent activity both during the procurement process and once the contract has been awarded. (8 November 2012)

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House of Commons Communities and Local Government Committee: Mutual and co-operative approaches to delivering local services
The main purpose of the CLG Committee’s inquiry was to investigate what local authorities are doing in practice, identify the benefits that such approaches might offer, to assess the risks and examine the support being provided by Government to assist in setting up mutuals and co-operatives. The Committee identified key constraints on development of mutuals and cooperatives as finance, taxation, procurement and cultural barriers. In its conclusions the Committee notes that mutuals and co-operatives providing local services are not being set up in significant numbers. The evidence is encouraging but is not sufficient either to demonstrate conclusive improvements in service or that savings can be made or that benefits in engagement and accountability will follow. It states that the Government has a choice – if it wants more mutuals and co-operatives to develop it much take action to provide support. (6 December 2012)

Cabinet Office: Mystery Shopper Service progress report – Trends from the first 18 months 
The Mystery Shopper Service aims to provide a structured mechanism for suppliers and others, such as trade organisations, to raise concerns about public procurement practice and processes. This report analyses the 300 plus referrals received since the service started and sets out the main issues raised under the scheme and the Cabinet Office’s recommendations on how to tackle them. The report focuses in particular on the use of pre-qualifications questionnaires, early market (pre-procurement) engagement, the impact on SMEs of framework and consortium arrangements, problems with e-procurement system and charging for tender documents as well as post contract issues such as payment and contract expiry. (18 December 2012)

NLGN/CBI: Commissioning dialogues 
This joint report looks at ways for commissioners and providers to engage constructively outside formal procurement and makes recommendations for reducing barriers to such engagement. The report has been produced following analysis of survey results, preparation of detailed case studies and round table dialogue sessions between local government and providers from both the private and voluntary/third sectors.  The term “commissioning” in this context is used widely to cover much more than just the procurement process. Interestingly, the EU procurement rules are identified as having some impact but not being a significant barrier to commissioning dialogues. Recommendations include use of a standard four stage commissioning model, the need for more flexibility and diverse skill sets and better understanding and management of risk. (10 December 2012)

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Legislation – UK

Public Services (Social Value) Act 2012 – in force from 31 January 2013
The Public Services (Social Value) Act 2012 (Commencement) Order 2012 (SI 2012/3173 (C.124)), published on 21 December 2012, brings the Public Services (Social Value) Act 2012 fully into force from 31 January 2013. The Act introduces a new 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. 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.
This legislation applies to all contracting authorities subject to the EU procurement rules, not just local and central government bodies. All contracting authorities will need to ensure that they fully consider the requirements of this Act when planning and procuring their service contracts.
The Cabinet Office has issued a Procurement Policy Note on the Act – PPN 10/12: Advice for Commissioners and Procurers. See note above under Policy and Guidance.
For further information and comment on what this means in practice please see our article published in April 2012: Public Services (Social Value) Act 2012.

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Legislation – EU

New Procurement Directives
The package of three new EU Procurement Directives covering the public sector, utilities and concessions is progressing through the next stages of the EU legislative process. In mid December the Competitive Council of the Council of Ministers reached agreement on a general approach on the basis of the latest compromise texts of the new Directives. There is, however, still a long way to go and considerable uncertainty about the timing of the next stages over the course of 2013 and the nature and extent of further changes to the draft legislation. The current versions of the compromise texts, which will form the basis of the next round of negotiations, are available on the Council of the European Union Public Register.
We will keep you updated on progress.

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DCLG: Improving local government transparency
Seeks views on making the Code of Recommended Practice for Local Authorities on Data Transparency a legal requirement. The proposals mean that all local authorities would be required to publish their spending over £500 online including, tenders, contracts, senior pay, councillor expenses, voluntary sector funding, meetings, and frontline service data so that the public can clearly see the decisions being made on their behalf. In addition, one of the Government's transparency trailblazers is now being extended to include all transactions above a new low threshold of £250 and 'can do' councils have been challenged to match that threshold. The consultation closed on 20 December 2012. (25 October 2012)

MoJ: Judicial Review – Consultation on proposals for reform
Seeks views on proposed reforms to judicial review, focusing on three areas:

  • the time limit for bringing proceedings;
  • applying for permission to bring a claim; and
  • fees for Judicial Review proceedings.

The consultation paper highlights two areas where it might be appropriate to shorten the usual three month time limit for bringing actions for judicial review – planning decisions and procurement cases. It is proposed to introduce a 30 day time limit for bringing judicial review actions relating to public procurement to align with the general time limit which applies for actions brought under the Public Contracts Regulations 2006. There are three questions raised on this specific issue. The consultation closed on 24 January 2013. (13 December 2012)

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Cases – EU

Édukövízig and Hochtief Construction AG v Közbeszerzések Tanácsa Közbeszerzési Döntobizottság (C-218/11) – Evaluation of a candidate’s economic and financial standing
This case relates to procurement of transport infrastructure works by a contracting authority in Hungary. The authority required all candidates to provide the same standard form document which sets out the information required to assess their economic and financial standing. A minimum requirement for qualification was that the balance sheet must not have shown a negative entry for the profit/loss item for more than one of the three last complete financial years.
Hochtief Construction AG was a Hungarian subsidiary of a German parent company. It was unable to satisfy the minimum requirement because under a profit transfer agreement it transferred all if its profits to its parent company, meaning that its own balance sheet was always zero or negative.  This was possible under German law applying to corporate groups established in Germany but was not possible under Hungarian law. Hochtief challenged the legality of the minimum requirement for qualification. The CJEU ruled that a contracting authority does have the discretion, in principle, to fix a minimum level of economic and financial standing by reference to a specified item on the balance sheet. The fact that there are differences between the legislation in different member states and, thus, differences in balance sheets between companies does not rule out the possibility of referring to a specified item for the purposes of selection. This is subject to the important principle that the level set must be reasonable, relevant and proportionate. Where, as in this case, a subsidiary is unable to meet the minimum requirement it can, however, rely on the provisions of Art.47(2) of the Public Sector Directive 2004/18 (reg.24 of the UK Regulations) which allows a firm to rely on the economic and financial standing of other group companies. (18 October 2012)

Econord SpA v Comune di Cagno (C-182/11 ) and Econord SpA v Comune de Solbiate, Comune di Varese (C183/11) – Teckal / In-house award
This is a further case developing the Teckal “in-house” exception. It relates to the degree and nature of the involvement and control required of participating authorities in Teckal companies. In this case, referred to the CJEU by the Italian Courts,  Varese Municipal Council established an in-house company (Aspem) to deliver urban hygiene services, including waste disposal. Varese Municipal Council owned the vast majority of the shares in Aspem. Two other municipal authorities decided to award contracts to Aspem for the provision of waste disposal services and purchased a single share each in Aspem. They also entered into a shareholders agreement under which they had a right to be consulted, to appoint a member of the supervisory council and to nominate - together with other participating authorities – a member of the management board.  The Italian Council of State sought a preliminary ruling to determine whether the arrangement fell within the Teckal exemption.
The CJEU stated that the joint control test cannot be satisfied where there is control only by the majority shareholder. In respect of the participating authorities, there must be more than a purely formal affiliation. There must be an actual possibility of effective participation in the Teckal company by the authority taking the single share and awarding the contract, either acting alone or in conjunction with other authorities.
Authorities awarding contracts to Teckal companies and other Teckal type bodies should take note that this decision points to the need for more than just the purchase of a share in return for award of a contract to the Teckal company. (29 November 2012)

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Forposta SA, ABC Direct Contact sp. z o.o. v Poczta Polska SA (C-465/11) – Exclusion on the grounds of professional misconduct 
This is the first public procurement case from Poland to be decided by the CJEU. It concerns a provision in the Polish Public Procurement Law which obliges contracting authorities to exclude candidates from participating in a tender process where, in the previous three years, the contracting authority “annulled, terminated or renounced” a contract with that candidate “owing to circumstances for which that economic operator is responsible….. and the value of the non-performed part of the contract amounted to at least 5% of the contract’s value”. The Polish legislation was based on Art. 45(2) of the Public Sector Directive 2004/17 which requires contracting authorities to exclude candidates who are guilty of “grave professional misconduct”.
The CJEU stated that the failure of an economic operatory to abide by its contractual obligations can, in principle, be considered professional misconduct but should not automatically be considered so. A specific and individual assessment should be carried out in these circumstances and automatic exclusion, as in the Polish legislation, goes beyond what is permitted. In addition the concept of exclusion on the grounds of “circumstances for which the economic operator is responsible”, as in the Polish legislation, is far wider than the concept of “grave professional misconduct” and cannot be considered a correct substitute for the original wording of the Directive.
The CJEU also held that as the Directive already contains a provision for grounds for exclusion based on criteria relating to professional qualities then the member state is precluded from adding to that ground as that list is exhaustive. It is only when the ground for exclusion does not fall within the list in the Directive that it is possible to consider whether additional grounds are permitted under EC Treaty principles or other rules of EU public procurement law.
Authorities in the UK should take care to ensure that they are correctly applying and interpreting grounds for exclusion. See note above on Procurement Policy Note 09/12 which also deals with exclusion on the grounds of poor performance. (13 December 2012)

Azienda Sanitaria Locale di Lecce v Ordine degli Ingegneri della Provincia di Lecce (C-159/11) – Public-public cooperation: the Hamburg exception analysed
This case relates to the award of a consultancy contract by the Lecce Local Health Authority to another contracting authority, the University of Salento. The consultancy contract, which was awarded without a tender process, was for the study and evaluation of the seismic vulnerability of hospital structures in the province of Lecce. Italian legislation specifically permits public administrative authorities to enter into agreements among themselves relating to cooperation in activities of a common interest and the local health authority relied upon these provisions in making the direct award to the university. The decision to award the consultancy contract was challenged by a number of professional associations and undertakings.
The CJEU held, analysing the conditions established in the Hamburg case (C-480/06) that EU public procurement law precludes national legislation which authorises the conclusion, without an invitation to tender, of a contract by which public entities establish cooperation among each other where (1) the purpose of the contract is not to ensure that a public task that those entities all have to perform is carried out, (2) that contract is not governed solely by considerations and requirements relating to the pursuit of objectives in the public interest or (3) it is such as to place a private provider of services in a position of advantage vis-à-vis his competitors.
Although this case concerns the question of national legislation relating to public-public co-operation and is fact specific, the Advocate General’s opinion and the analysis by the court of the Hamburg conditions is of interest. For example, the CJEU was clear that the public task must be a task common to each of the contracting authorities and not merely a task which one of the authorities is obliged to fulfil and chooses to do so by an arrangement with another authority. This case is essential reading for all contracting authorities seeking to rely on the Hamburg exception. (19 December 2012)

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Cases – UK

Clinton (trading as Oriel Training Services) v Department for Employment and Learning [2012] NICA 48 (NI CA) – Failure to meet selection criteria
This case relates to the procurement by the Northern Ireland Department for Employment and Learning (DEL) of contracts to provide training and apprenticeship programmes, which are Part B services. Oriel Training was excluded from the procurement process on the grounds that they had failed to meet one of the selection criteria. Oriel challenged the decision to exclude them, arguing that this was in violation of the procurement regulations on the grounds that:

  1. the DEL had applied requirements not contained in the selection criteria or that the criterion was insufficiently clear – candidates were asked to provide “dates, outcomes and explanations"; and
  2. the DEL had violated the principle of equal treatment by asking for clarification from some of the other candidates but not Oriel.

On the first issue the Court of Appeal of Northern Ireland agreed with the first instance judge. It applied the SIAC test which requires award criteria to be formulated “… in such a way as to allow all reasonable well informed and normally diligent tenderers to interpret it in the same way” and concluded that the selection criterion was insufficiently clear and that Oriel was unlawfully excluded. The court was split on the second issue but the majority were of the view that there had not been any unlawful conduct in the clarification process. (13 November 2012)

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Government Procurement Service: ICT framework review
Announces that planned GPS ICT procurements have been paused pending the outcome of an internal review to ensure they are aligned with strategy and achieving the best results for buyers and suppliers. The review is currently underway and expected to be completed by the end of November. Customers can continue to use all existing GPS ICT arrangements during the review. Current frameworks, further competitions, eAuctions and MOUs are not affected. (6 November 2012)

OFT refers Dorset hospitals merger to Competition Commission
The Office of Fair Trading has referred the proposed merger of Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust and Poole Hospital NHS Foundation Trust to the Competition Commission for an in-depth investigation. This is the first merger between two NHS foundation trusts examined by the OFT since the enactment of the Health and Social Care Act 2012, which confirmed the OFT's role in assessing the competition aspects of mergers involving foundation trusts. The Competition Commission is expected to report by 24 June. (8 January 2013)

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