This Update contains brief details of recent key developments relevant to those involved in procurement work that have been published in the pastfive months.
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:
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:
"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:
"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
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
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
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
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
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
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
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)
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
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.
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)
Willmott Dixon Partnership v Hammersmith & Fulham LBC
 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  EWHC 3133
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  EWHC
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.
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
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
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)
The Crown Commercial Services legal services 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 Lot 7: General Litigation and Legal Support Services and Lot 8: Major or Complex Projects.