13/01/2015
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
Procurement Policy Note 09/14 – Use of Cyber
Essentials Scheme Certification
The Government is taking steps to further reduce the levels of
cyber security risk in its supply chain. In consultation with
industry the Government has developed the "Cyber Essentials"
certification scheme. Cyber Essentials defines a set of controls
which, when properly implemented, will provide organisations with
basic protection from the most prevalent forms of threat coming
from the internet. Cyber Essentials covers the basics of cyber
security in an organisation’s enterprise or corporate IT system.
There are two levels of certification: Cyber Essentials and Cyber
Essentials Plus. Cyber Essentials Plus is more rigorous as it
requires vulnerability tests to be performed as part of the
certification.
From 1 October 2014 "in-scope" organisations must ensure that
suppliers tendering for certain types of contracts meet the
technical requirements prescribed by Cyber Essentials. The relevant
contracts are those where:
- personal information of citizens, such as home addresses, bank details, or payment information is handled by a supplier.
- personal information of Government employees, Ministers and Special Advisers such as payroll, travel booking or expenses information is handled by a supplier.
- ICT systems and services are supplied which are designed to
store, or process, data at the OFFICIAL level of the Government
Protective Marking scheme.
Cyber Essentials could also be used in any category of Government procurement on a case-by-case basis if a contracting authority considers this appropriate.
"In-scope" organisations are all Central Government Departments, their Executive Agencies and Non Departmental Public Bodies. Other contracting authorities may choose to apply the measures set out in the PPN. (25 September 2014)
Procurement Policy Note 10/14 The Plan for Public
Procurement of Food and Catering Services
In December 2013, the Secretary of State for Environment, Food and
Rural Affairs asked Dr Peter Bonfield to chair the initiative, A
Plan for Public Procurement: Food and Catering Services, and to
report in the summer of 2014. The initiative set out ‘to ensure
that public sector procurement of food and catering services
maximises the health outcomes of those people affected by it, in a
way that boosts support for a vibrant and competitive UK food and
farming sector, and which delivers the best value per pound spent’.
In July 2014 a toolkit for the procurement of food and catering
services was launched.
Procurement Policy Note 10/14 requires "in-scope" organisations to
use the toolkit and to:
- commit to food procurement using the balanced scorecard methodology and revised Government Buying Standards (GBS); and
- be proactive in contract management, and work with their suppliers to ensure that they are sourcing responsibly and in a way which is compliant with the balanced scorecard approach.
"In-scope" organisations are all Central Government Departments, their Executive Agencies and Non Departmental Public Bodies. Other contracting authorities are strongly recommended to apply the measures set out in the PPN. (10 November 2014)
Procurement Policy Note 11/14 – References and
public procurement
This Procurement Policy Note, which applies to "in-scope"
organisations, provides clarification of the issue of whether
commercial staff in contracting authorities are able to provide
references for suppliers. The Note confirms that there is no legal
impediment to providing references but any opinions offered must be
backed by contemporaneous records. Recommended policy is to accept
requests for references in support of a specific contract but to
avoid providing "open" references not related to a specific
contract.
"In-scope" organisations are all Central Government Departments,
their Executive Agencies and Non Departmental Public Bodies. (10
December 2014)
HC Public Accounts Committee: Transforming contract
management
This report scrutinises the contracting out of public services. It
finds that the Government will not achieve value for money from its
contracts until it pays much more attention to contract management
as the Civil Service has prioritised the work involved in letting
contracts and deemed the monitoring of contracts as mechanical and
unimportant. Also, contractors have not shown an appropriate duty
of care in the use of public funds. Some suppliers have lost sight
of the fact that they are delivering public services, and that
brings with it an expectation to do so in accordance with public
service standards. It warns that Government must guard against
suppliers becoming too important to fail, and should encourage
competition through, for example, disaggregating contracts to
encourage SMEs to bid for work. Government needs to extend
its open book access arrangements in order to better understand
contractors’ performance and costs and ensure that contractors can
only increase profits by performing better or cutting the cost to
the taxpayer. Contractors also need to accept that spending public
money brings with it a greater degree of public scrutiny and
transparency; they must be far more open through, for example, the
publication of contracts and performance indicators being standard
practice. (10 December 2014)
NAO: Parliamentary and Health Service Ombudsman
procurement investigation
Report on the NAO's investigation arising from the findings of
Internal Audit for the Parliamentary and Health Service Ombudsman
(PHSO) regarding the management of conflicts of interest in
procuring services during a fundamental change programme. The
programme led to the publication of the PHSO Strategic Plan
2013-18. The PHSO procured services from external organisations and
consultants to assist with the design of the Strategic Plan, assess
the ways that PHSO needed to change internally and help support the
organisation’s development in making that change. In light of
concerns raised by the Internal Audit provider regarding the
management of conflicts of interest in procuring services during
this transitional period, the NAO decided to investigate the PHSO's
handling of four contracts worth more than £1m in more depth. It
found no evidence of material irregularity, or undue influence in
procurements arising from conflicts of interest and so does not
anticipate any undue threat to the audit opinion for 2013-14. In
relation to the procurement and management of transition
expenditure examined as part of this review, the PHSO may be
exposed to the criticism that it had not exercised the expected
stewardship and governance over public funds. (18 December
2014)
NAO: Paying government suppliers on time
This report examines the Government's prompt payment commitment and
the role of Cabinet Office and BIS in supporting and monitoring the
drive for prompt payment within government and the private sector.
It finds that there is little evidence that the Government’s
commitment to pay 80% of undisputed invoices within 5 working days
is having the intended effect of helping the UK’s 5m small and
medium-sized enterprises (SMEs). Central government spends £40bn a
year on goods and services, of which about £4.5bn is spent directly
on purchases from SMEs. The report finds that, while UK businesses
welcome the Government’s commitment to pay invoices more quickly
than the 30 days required by law, there is a risk that the policy
boosts the working capital of main contractors rather than
benefiting other businesses down the supply chain. (8 January
2015)
HC Public Accounts Committee: Procuring new
trains
This report is highly critical of the Government's purchase of new
trains costing £10.5bn through two PFI deals that transferred all
the risk to UK taxpayers. It finds that the Department’s failure to
articulate its role in the rail system has caused confusion in the
rail industry. The Department considered that in taking the lead it
was best able to secure value for money for taxpayers in
procurements of this scale, but it had not set out when it intended
to use this approach, causing confusion in the industry. The
Department believed that it should lead these procurements because
of their scale and complexity, and the need for greater uniformity
in the fleet which would bring economies of scale and other
operational benefits; it also believed that the train operating
companies did not have the right incentives to buy trains which
minimised maintenance costs to Network Rail. However, the
Department’s role in this procurement appeared to be at odds with
its previous policy of transferring responsibility for procuring
trains to the industry. The Department did not appear to have
examined alternative ways of achieving its objectives, such as
providing the train operators with the right incentives. The
Department had no clearly stated rationale for the aspects of rail
where it would simply set policy and strategic goals, and those
where it believes it has an additional responsibility to intervene
in operational decisions. The Committee makes a number of
recommendations, including that before starting any procurement the
Department should develop its knowledge of the supply market and
underlying costs to inform its procurement strategies, to determine
whether bidders’ proposed prices are reasonable, and to help
negotiate prices with suppliers; and the Department should be more
assertive in using its powers to require information on, for
example, the supply chain proposals, the use of SMEs and the
employment in apprenticeships to ensure that the UK economy and
UK-based industry benefit from large capital public sector
investment programmes. (17 December 2014)
Competition and Markets Authority: Bid-rigging –
advice for public sector procurers
This very short note looks at two questions: "What is bid rigging?"
and "Why should public sector procurers care about bid-rigging?".
It provides some tips on how to spot suspicious bidding patterns.
(25 November 2014)
DBIS: Directive 2011/7/EU on combating late payment
in commercial transactions – A user's guide to the recast Late
Payment Directive
Updated guidance on the Late Payment of Commercial Debts
Regulations 2013 (SI 2013/395) that implement Directive 2011/17.
Under the regulations, public authorities must pay for the goods
and services that they procure within 30 days. This revised version
clarifies the guidance on payment between public authorities and
business. (3 October 2014)
DCLG: Fire and rescue procurement aggregation and
collaboration
This joint report from DCLG and the Chief Fire Officers Association
analyses and evaluates existing procurement for a sample group of
fire and rescue authorities in England. It identifies obstacles to
collaborative procurement and sets out a high level plan of where
the fire sector could make future savings and efficiencies. it
follows on from Sir Ken Knight's review last year, which
highlighted the scope for the services to find £200m in savings
whilst safeguarding emergency operations and protecting public
safety. (21 October 2014)
LGA: Local transparency guidance – publishing
spending and procurement information
The LGA has published a set of revised practical guidance documents to
support local authorities in understanding and implementing the
Transparency Code 2014 and to help them publish the data in a
meaningful and consistent way. This practitioner’s guide advises on
publishing information about expenditure, tenders, contracts and
grants in accordance with the local government transparency. (4
December 2014)
DCLG: Transparency code for smaller
authorities
This code of recommended practice is issued under s.2 of the Local
Government, Planning and Land Act 1980. It sets out the information
that smaller authorities should publish, i.e. parish councils,
internal drainage boards, charter trustees and port health
authorities with an annual turnover <£25,000. The information
that these smaller authorities should publish includes expenditure
over £100. It also states that "smaller authorities should expect
to publish details of contracts newly entered into – commercial
confidentiality should not, in itself, be a reason for smaller
authorities to not follow the provisions of this Code. Therefore,
smaller authorities should consider inserting clauses in new
contracts allowing for the disclosure of data in compliance with
this Code". (17 December 2014)
Legislation
Bevan Brittan byte size procurement updates
We have published four further "byte size" legal updates, in which
we look at the new Public Sector Directive and deconstruct it
into a topic based approach. For each topic we provide a brief
explanation of the most relevant new and updated provisions in the
new Directive. We also highlight some of the practical implications
of those provisions. These updates cover:
11: The Draft Public Contract Regulations 2015 - implementing
optional provisions
12: The new “light touch regime” – Articles 74 to
76/Regulations 74 to 76
13: Revised Bytes
14: The Young Reforms Part 1 - Abolition of the
pre-qualification process for low value contracts
Public Contracts Regulations 2015 in force during first
quarter of 2015?
In September 2014 the Cabinet Office issued the draft Public
Contracts Regulations 2015 for consultation. The regulations will
implement the new Public Sector Directive 2014/24/EU as well as
introducing new national provisions relating primarily to low value
contracts. Once in the force in England, Wales and Northern
Ireland, the new regulations will replace the current Public
Contracts Regulations 2006.
For more details of the consultation, see our Procurement Alert: New draft Procurement
Regulations published.
The consultation closed on 17 October 2014. So when will
the new regulations come into force?
Supply Management have reported that in early
December, Ed Green, Deputy Director of EU and Domestic Procurement
Policy at the Crown Commercial Service, announced at the Government
Procurement Summit that they want the Directive to be in
force by early 2015. This confirms an earlier statement from Kris
Hopkins, Minister for Local Government in a letter to Leaders of
Local Authorities which referred to the legislation coming into
force in early 2015. This timing makes sense if the government
wants the Regulations in force before the May General Election.
Green also said the Directive covering utilities would be
transposed in the summer of 2015 and the one covering concessions
by April 2016.
Consultations
Cabinet Office: Social Value Act – Review
The Cabinet Office has issued a consultation as part of its Social
Value Act review. The review is looking at how the Public Services
(Social Value) Act 2012 is working and whether it would be
beneficial to extend it. It also looks at how the Act might be
extended in a way that continues to support small businesses and
voluntary, charity and social enterprise (VCSE) organisations to
bid for public contracts. The consultation closed on 28 November
2014. (24 October 2014)
Cases – UK
Willmott Dixon Partnership v Hammersmith & Fulham LBC
[2014] EWHC 3191 (TCC)
This case concerned the award of a contract for housing repair and
maintenance services by the London Borough of Hammersmith and
Fulham (H&F). Willmott Dixon Partnership (WDP) was a provider
of some repair and maintenance services to H&F from 2005. In
2012 H&F advertised a contract for housing repair and
maintenance services, to be awarded either as two separate lots or
one combined lot. The way in which the contract was packaged in
2012 represented a significant change to the previous contract
structure and approach to delivery of the required services.
At the PQQ stage tenderers were required to indicate whether they
wished their response to be assessed on the basis that they were
part of a consortium, a sole tenderer or a lead applicant with a
"significant sub-contractor". A significant sub-contractor was
defined as one whose work could account for 7% or more of the
contract value. WDP submitted a PQQ on the basis that it was not
intending to use a significant sub-contractor, which was the case
at the time. WDP successfully prequalified and in January 2013 it
submitted its tender and indicated in its method statement that it
intended to sub-contract gas appliance services to a named
contractor, "Jones". The value of those services exceeded 7% of the
contract value and so Jones was a significant sub-contractor. WDP
only decided a few days before it submitted its tender that it
would sub-contract to Jones, which was an incumbent provider of gas
appliance services to F&H.
F&H evaluated the tenders received and decided to award a
single contract to Mitie. WDP challenged the award on the grounds
of breach of statutory duty under the Public Contracts Regulations
2006, breach of principles of EU law and breach of an implied
contract. WDP argued that new or inadmissible criteria had been
taken into account in the evaluation of the tenderers' and that the
evaluation process had not been conducted in accordance with the
tender documents.
Prior to the court hearing WDP agreed to the lifting of the
automatic suspension and so H&F went ahead and awarded the
contract to Mitie. In a lengthy judgment on the issue of liability
the court considered 13 issues concerning the detail of the
evaluation process. Issues included: the use of award criteria not
aimed at identifying the most economically advantageous tender,
unspecified criteria including the expectation of a "sea change" in
delivery and failure to score quality submissions in accordance
with the specified methodology. The court held that there had
been no systemic defect in the evaluation process, nor had there
had been breaches of the principles of equal treatment and
non-discrimination in the marking of tenders. (9 October 2014)
NATS (Services) Ltd v Gatwick Airport Ltd [2014] EWHC 3133
(TCC)
Lifting of an automatic
suspension
This case concerned a procurement carried out by Gatwick Airport
Ltd (GAL) for the provision of air traffic control services. The
contract was advertised in the Official Journal of the European
Union in October 2013. The opportunity was divided into two lots:
Lot 1 was for air navigation services and Lot 2 was for maintenance
and repair services. In July 2014 GAL wrote to NATS, which
specialises in air traffic control services, informing NATS that
its tender for both lots was unsuccessful. NATS then
requested further information from GAL and GAL, presumably in
declining to provide further information, contended that the
Utilities Contracts Regulations 2006 ("Utilities Regulations") did
not apply.
On 18 August 2014 GAL wrote to NATS giving 7 days' notice of GAL's
intention to enter into the contract with the successful
contractor. NATS then issued proceedings, arguing that the two
separate lots of the contract should have been evaluated
separately, and that GAL had used undisclosed, irrational and
inappropriate award criteria. NATS also claimed that if the
regulations did not apply there was an implied contract governing
the tendering process and that an interim injunction should be
granted to prevent the contract going ahead.
The court held that there was a serious issue to be tried on the
questions of whether or not the Utilities Regulations applied and
on the implied contract argument. GAL had already conceded that
there was a serious issue to be tried concerning the evaluation.
The court concluded that the automatic suspension should not be
lifted and, in respect of the allegation of breach of implied
contract, an interim injunction should be granted. This was based
on the view that damages would not be an adequate remedy for NATS
This was because of the difficulty of estimating damages and of the
reputational loss that would occur. The court was also of the view
that, in the light of the delay in the process already
incurred, the balance of convenience favoured
suspending the process.
The same rules govern suspension in the context of procurements
covered by the Public Sector Directive 2004/18 and Public Contracts
Regulations 2006. This means that the court’s decision on
suspension is equally relevant for contracts covered by the Public
Contracts Regulations 2006. (2 October 2014)
R (Edenred (UK) Ltd) v HM Treasury [2014] EWHC
3555 (QB)
Lifting of an automatic suspension
This case related to arrangements for the administration of the
Government’s new scheme for support of working parents, known as
Tax Free Childcare. The Government decided to entrust the
administration of the scheme to National Savings and Investments.
This proposal would then have involved HM Treasury entering into a
memorandum of understanding with NSI and NSI, in turn, amending its
outsourcing contract with a private sector company. The
Government's decision was challenged by Edenred, which argued that
the arrangements involved an unlawful award or material amendment
of a public contract. HM Treasury applied to lift the automatic
suspension.
Leggatt J decided that the suspension should remain in place until
the expedited trial listed for the end of November. He considered
that damages were not an adequate remedy given the difficulty of
assessing these when no actual tendering exercise been undertaken.
He was of the view that the balance of convenience required
maintaining the suspension. There was a public interest in avoiding
delay but that did not outweigh the strong public interest in
promoting competition and fairness in the award of public
contracts, in this case a contract worth approximately £160m.
(27 October 2014)
For a detailed case report, see 11KBW's website.
Cases – EU
Ministero dell’Interno v Fastweb (C-19/13)
Use of VEATs (voluntary ex ante transparency
notices)
This is the first case in which the ECJ has looked at the use of
the voluntary ex ante transparency notice (VEAT). VEATs can
be used by contracting authorities where they propose to award a
contract direct to a contractor without prior publication of a
contract notice in the OJEU. Where the contracting authority is of
the view that one of the conditions applies which permits a
"direct" award then it can publish a VEAT in the OJEU notifying its
intention to go ahead and award the contract. If it then
waits 10 days before entering into the contract the remedy of
ineffectiveness will no longer be available.
In this case the ECJ ruled that in some situations it may still be
possible for a contract to be declared ineffective, even where a
VEAT has been published. This is because the contracting authority
relying on the VEAT must genuinely believe that the conditions
permitting direct award are satisfied. In this case the ECJ was not
convinced that the conditions were satisfied. It was of the view
that the grounds cited by the Italian authorities justifying the
direct award related to expediency and convenience and did not fall
within one of the limited conditions. The ECJ also ruled that
review bodies (the courts in the UK) must declare a contract
ineffective if the contracting authority could not legitimately
hold that that the conditions for directly awarding the contract
were in fact satisfied.
This case confirms the need for a genuine belief on the part of the
contracting authority that a particular condition does apply – a
"good faith" type test. It is important for contracting authorities
to documents the evidence supporting the decision to rely on one of
the conditions permitting direct award and to use a VEAT. (11
September 2014)
Bundesdruckerei GmbH v Stadt Dortmund
(C-549/13)
Requirement for payment of a minimum wage to employees of a
subcontractor established in and delivering services from another
Member State
The city of Dortmund went out to tender for the award of a contract
for the digitalisation of documents and the conversion of data for
its urban-planning service. In accordance with national law
it required that the successful tenderer guarantee a minimum wage
of €8.62 even for workers employed by a subcontractor established
in another Member State (in this case, Poland) and who would carry
out the work exclusively in that State.
The ECJ held, on these facts, that the freedom to provide services
precluded the contracting authority from requiring the
subcontractor to pay a minimum wage to workers located in another
Member State. The ECJ declared that the national legislation was
capable of constituting a restriction of the freedom to provide
services. The imposition of a minimum wage on a subcontractor
established in another Member State in which minimum rates of pay
are lower constitutes an additional economic burden that may
prohibit, impede or render less attractive the provision of
services in that other Member State.
The ECJ did note that this type of legislation may, in principle,
be justified by the objective of protecting employees. However, in
so far as it applies solely to public contracts, such legislation
is not appropriate for achieving that objective if there is no
information to suggest that employees working in the private sector
are not in need of the same wage protection as those working in the
context of public contracts. In any event, the national legislation
was disproportionate. And prevented subcontractors established in
another Member State from deriving a competitive advantage from the
differences between the respective rates of pay. The national
legislation went beyond what is necessary to ensure that the
objective of employee protection is attained. (18 September
2014)
Azienda sanitaria locale n.5 ‘Spezzino’ v San Lorenzo
Società Cooperativa Sociale (C-113/13)
Limitation on award of ambulance services
contract
In this case the ECJ was required to consider the position where
national legislation limited the award of contracts for the
provision of ambulance services to certain types of providers. This
decision ventures into the thorny issue of the extent to which
Member States are free to decide how to organise their public
health and social security systems. On the specific facts of
this case the ECJ ruled that emergency ambulance services may be
entrusted on a preferential basis and by direct award to voluntary
associations. The decision should be read in the particular
context of the Italian system for the delivery of public health
services. The ECJ was clear that the system limiting the type of
provider for a particular service must actually contribute to the
pursuit of the objectives of the good of the community and
budgetary efficiency.
(11 December 2014)
Croce Amica One Italia Srl v Azienda Regionale Emergenza
Urgenza (AREU) (C-440/13)
Freedom to terminate a procurement procedure without
awarding a contract
In this case the ECJ confirmed, as it has done in previous
decisions, that a contracting authority was free to decide not to
award a contract for which a procurement procedure has been held.
It was not required to proceed with the definitive award of the
contract to the sole remaining tenderer.
The ECJ confirmed that Directive 2014/18 does require a contracting
authority to notify candidates and tenderers as soon as possible of
a decision to withdraw an invitation to tender and to explain its
reasons for doing. There are, however, no substantive or
formal conditions for such a decision. Provided that the principles
of transparency and equal treatment are complied with, a
contracting authority cannot be required to carry an award
procedure to its conclusion and award the contract in question.
The ECJ also ruled that reviews under Remedies Directive 89/665 may
not be confined to a simple examination of whether the contracting
authorities' decisions are arbitrary. National legislation
may grant the competent national courts more extensive
powers for the purpose of reviewing whether a measure is expedient.
(11 December 2014)
Cartiera dell’Adda SpA v CEM Ambiente SpA
C-42/13
Exclusion of a contractor on grounds specified in the
tender documents
This case concerned a decision by a contracting authority to
exclude a contractor from a tender process for the award of a
municipal waste contract. The contracting authority excluded the
contractor because it had failed to submit a statement that its
technical director did not have a criminal conviction relating to
any of the offences which are grounds for mandatory exclusion. The
tender documents provided that failure to provide required
statements would result in exclusion from the tender process.
The ECJ considered whether the contracting authority was under a
duty to allow correction of a submission after the expiry of the
deadline for submission. The ECJ held that there was no such duty
on the contracting authority. In this particular case the ECJ was
of the view that the contracting authority could not allow a
correction. This was because the tender documents had expressly
provided that failure to provide required statements would result
in exclusion. Correction of defects in documents is not permitted
where this is not permitted in the tender documents.
Contracting authorities need to draft tender documents carefully.
If they wish to allow for the possibility of correction of
submissions then they must ensure that this is provided for in the
tender documents. Corrections will, even then, only be
permitted where they duly justified under the rules and does not
distort competition or amount to unequal treatment. (6 November
2014)
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