Procurement Update – June 2015

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


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Emily Heard


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:

Crown Commercial Service Procurement Policy Notes (PPNs)

PPN 03/15: Reforms to make public procurement more accessible to SMEs 
Guidance on reforms which are implemented in Part 4 of the new Public Contracts Regulations 2015. They include: 

  • removing a pre-qualification stage for procurements below the EU thresholds; 
  • a requirement for contracting authorities to include provisions to ensure prompt payment through the supply chain; and 
  • a requirement to advertise public sector opportunities in one place (Contracts Finder)

The Regulations will, primarily, come into force on 26 February 2015. (18 February 2015)

PPN 04/15: taking account of suppliers’ past performance
This PPN incorporates new Public Contracts Regulations 2015 requirements and sets out how Government ensures that suppliers’ past performance is taken into account in certain procurements. This PPN applies from 1 April 2015 for all in-scope stand-alone public contracts and framework agreements (as set out in paras.5 and 6 of the note) for which a contract notice has not yet been published in the OJEU. (25 March 2015)

PPN 05/15: Prompt payment and performance reporting
Sets out what central government departments, including their Executive Agencies and Non Departmental Public Bodies, must do to comply with the requirements. It also restates the policy on prompt payment for central government (PPN 08/10). (27 March 2015)

PPN 06/15: sustainable skills development through major projects
This policy aims to support growth by building a more skilled and productive workforce, reducing the risks of supply constraints and increased labour cost inflation. (27 March 2015)

PPN 07/15: Open standards for technology
This note provides information on: 

  • government policy on open standards principles for software interoperability, data and document formats; 
  • open standards that have been selected for use across government; and 
  • practical guidance on specifying one of the Government’s selected standards, Open Document Format (ODF), within procurement for office productivity software.

It replaces PPN 09/11 on using open standards when specifying IT requirements. (27 March 2015)

PPN 08/15: Tax arrangements of appointees
Guidance for departments, their Executive Agencies and Non Departmental Public Bodies to help them seek assurance about the tax arrangements for their public appointees. This note replaces PPN 07/12 (Tax arrangements of public appointees) issued on 24 August 2012. This reflects the withdrawal by HM Revenue and Customs, with effect from 6 April 2015, of business entity tests referred to in the earlier note. (27 March 2015)

PPN 09/15: Requirements for contracting authorities to assist with procurement investigations
This PPN explains the new statutory requirements on contracting authorities to comply with Mystery Shopper procurement investigations. The statutory requirements are set out in s.40 of the Small Business Enterprise and Employment Act 2015 (SBEE).
The requirement to comply with a Mystery Shopper investigation applies to all contracting authorities covered by the Public Contracts Regulations 2015, which includes local authorities, registered providers and NHS bodies. There is a carve out for central government departments, their arms-length bodies and non departmental bodies but they are still expected to comply with Mystery Shopper service investigations through normal interdepartmental cooperation. There are some limited exceptions for bodies exercising devolved functions, schools and academies and the procurement of health services for the purpose of the NHS.
The PPN explains that the Mystery Shopper service will ask contracting authorities to respond to their enquiries as soon as possible, usually within two weeks. This is initial request is not a statutory notice.  If the authority fails to respond or fails to assist the Mystery Shopper team then the team may issue a formal statutory notice under section 40 SBEE. There is no specified form for that notice but contracting authorities must comply within 30 days of the day when the notice is given. (1 June 2015)

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Crown Commercial Service Procurement Guidance on the Public Contracts Regulations 2015

The Crown Commercial Service (CCS) has issued guidance notes and statutory guidance on various aspects of the Public Contracts Regulations 2015. The current versions of the notes and statutory guidance can be downloaded from the CCS transposition page. Short summaries of the information published to date are set out below:

Public Contracts Regulations 2015 – Statutory guidance for contracting authorities and suppliers on paying undisputed invoices in 30 days down the supply chain
Statutory guidance, issued under reg.113 of the Public Contracts Regulations 2015, relates to the payment of valid and undisputed invoices within 30 days. (13 May 2015)

Public Contracts Regulations 2015 – New requirements relating to pre qualification questionnaires to help businesses access public sector contracts
Statutory guidance on qualitative selection for above EU threshold procurements. Contracting authorities must have regard to this guidance for all new procurements that commence from 26 February 2015, when the new regulations come into force. It recommends that all public sector bodies subject to this guidance should adopt the set of standardised selection questions when assessing supplier suitability for providing goods and services. (27 February 2015)

Guidance on the new transparency requirements for publishing on Contracts Finder
This guidance applies to new procurements from the day upon which the Public Contracts Regulations 2015 come into force. It gives guidance on the requirement on contracting authorities to ensure that any new procurement opportunities, above specified thresholds, are published on Contracts Finder. (27 March 2015)

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Other policy and guidance

Cabinet Office: Social Value Act review
This review examines how the Public Services (Social Value) Act 2012 has been performing in its first two years. It finds that the Act is having a positive effect where it is taken up, and that it has clear potential to act as a tool for smarter procurement given the right application. The review also makes recommendations around how to further develop the social value agenda and to move the Act into its next phase of implementation. The report includes case studies, practical guidance on how to apply the Act, and a framework and principles for measurement. The Social Value Act requirements apply to service contract, including light regime service contracts, above the EU thresholds of £111,676 / £172,514. (13 February 2015)

DH: Procurement transparency
Updated guidance to all NHS Foundation and Non-Foundation trusts on the actions to be taken to increase openness and clarity about NHS procurement. (26 March 2015)

DH: NHS terms and conditions for the supply of goods and the provision of services: guidance
Updated guidance on: 

  • the NHS Terms and Conditions for the Supply of Goods (Contract Version), the NHS Terms and Conditions for the Provision of Services (Contract Version), and the combined NHS Terms and Conditions for the Supply of Goods and the Provision of Services (Contract Version); 
  • the NHS Terms and Conditions for the Supply of Goods (Purchase Order Version) and the NHS Terms and Conditions for the Provision of Services (Purchase Order Version); and 
  • the NHS Framework Agreement for the Supply of Goods and the NHS Framework Agreement for the Provision of Services.

(26 March 2015)

DfE: Effective buying for your school
Updated departmental advice for school leaders, school staff and governing bodies of local authority maintained schools. The advice outlines basic rules of procurement, which aim to ensure that public funds are spent openly and fairly. It also aims to protect schools against legal challenges, financial penalties and reputation damage. (12 May 2015)

DCLG: Revised Best Value statutory guidance
Sets out some reasonable expectations of the way in which Best Value authorities should work with voluntary and community groups and small businesses when facing difficult funding decisions. It gives a new, clear prominence to requirements on dealing with the voluntary and community sector and small businesses, helps build the confidence of these organisations in holding public agencies to account, and is explicit about the scope for Best Value authorities to consider social value in their functions, as required by the Public Services (Social Value) Act 2012. It also includes a new requirement for authorities not to commission services from, give grants to, or sell assets to individuals or organisations which are considered extremist. The Government’s Extremism Analysis Unit will produce separate guidance on conducting due diligence to check for extremism in due course. (27 March 2015)

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Public Contracts Regulations 2015 (SI 2015/102)
These regulations, which mainly come into force on 26 February 2015, implement the Public Procurement Directive 2014/24 in England, Wales and Northern Ireland, which provides modernised rules for the procurement of goods, services and works above certain thresholds by public authorities. The regulations also re-enact the relevant provisions of the Remedies Directives 89/665 (as amended) on remedies and review procedures for public procurement. They revoke and replace SI 2006/5. (5 February 2015)
For a detailed summary of the regulations see Bevan Brittan's Byte size procurement update 15: Public Contracts Regulations 2015 published.

Bevan Brittan byte size procurement updates
We have published six further "byte size" legal updates, in which we look at Directive 2014/25/EU and the Public Contracts Regulations 2015 and deconstruct them in a topic based approach. These bytes cover:

15: Public Contracts Regulations 2015 published
16: Advertising on Contracts Finder - EU contracts
17: Advertising on Contracts Finder - contracts below the EU thresholds
18 Part 1: Regulation of qualitative selection for EU contracts
18 Part 2: Abolition of the pre-qualification stage for low value contracts
19: Regulation 84 reports and other reporting and document requirements.

We have also published updated Bytes 1 to 15, to include references to the Public Contracts Regulations 2015.

Small Business, Enterprise and Employment Act 2015
Part 3 of this Act deals with public sector procurement and is now in force. Article 39 gives wide ranging powers to the Minister for the Cabinet Office or the Secretary of State to issue regulations imposing duties on contracting authorities in relation to their procurement functions. Article 40 places the Cabinet Office Mystery Shopper investigation service on a statutory footing.   DBIS has published a fact sheet on how it intends to use the Act's regulation-making power in s.39 to impose duties on contracting authorities and explaining the investigative powers. It has also issued a policy statement on s.39 and illustrative draft regulations.  (26 March 2015)

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European Commission: Consultation on remedies in public procurement
Seeks views on the effectiveness of the provisions of the Remedies Directive 2007/66. The Commission must report to the European Parliament and to the Council on the effectiveness of the Remedies Directive, in particular of the alternative penalties and time limits. Also Directive 2007/66 must undergo an evaluation in 2015, to assess the functioning of the provisions introduced by it. The consultation closes on 20 July 2015. (24 April 2015)

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Cases – UK

R (Gottlieb) v Winchester City Council; Silverhill Winchester No 1 Ltd (Interested Party) [2015] EWHC 231 (Admin) (Admin Ct)
Unlawful variations to a development agreement
This case related to a development agreement between Winchester City Council and a developer which was concluded in 2004 without an EU compliant competition. The opportunity should have been advertised as a works concession contract but by the time of G's claim it was too late to challenge the original (lack of) procurement process. The agreement related to the development of an area in Winchester city centre including retail and residential development as well as car parking, a new bus station and public square. G was a resident of Winchester, a council tax payer, a local councillor and leader of a campaign opposing the development scheme. G applied for judicial review of the Council's decision to authorise variations to the development agreement to remove affordable housing, replace the bus station with an on-street bus exchange and remove certain civic amenities. The grounds of challenge were that the variations were materially different from the original contract and changed the economic balance in favour of the developer.
The court first considered whether G had sufficient standing to bring the claim and concluded that  he did have standing. G was successful in his judicial review application. The court held that that the variations to development agreement, taken as a whole, resulted in a contract which was materially different in character from that which was originally concluded. The changes were such as to demonstrate the intention of the parties to re-negotiate the essential terms of the contract. Whilst the subject-matter of the development agreement remained the same, the terms had become a significantly more attractive commercial proposition for a potential bidder. It was not necessary for the claimant to point to an actual bidder who would have applied for the varied proposition; it was enough to show that a realistic hypothetical bidder would have applied for the varied contract. The court confirmed that in the context of a works concession contract, economic benefit was not to be assessed just on the basis of the financial terms between the Council and the developer. Potential profits from third party contracts also fell within that assessment. The court was of the view that the more favourable terms would have enabled other realistic bidders to bid, because of the reduced costs and increased opportunity for profit. The Council could not rely on the broadly drafted variation provisions to justify the agreed changes. The decision by the Council to authorise variations to the development agreement, without carrying out a procurement process as required by Directive 2004/18 and the Public Contracts Regulations 2006, was unlawful. (11 February 2015)
Note: At the time of the case it was decided that as the 2014 Directive had not been implemented in the UK, the question whether or not the variations required a new procurement procedure were to be determined by reference to the case law (rather than the new regulations on modifications to contracts contained in Article 72 of the 2014 Directive).

Solent NHS Trust v Hampshire CC [2015] EWHC 457 (TCC)
Application to lift an automatic suspension granted
Solent NHS Trust ("Solent") was the incumbent provider of substance misuse recovery services. Solent was second placed in a tender run by the Council for county-wide integrated provision of those services, a contract worth £40m and due to start on 1 April 2015. Solent challenged the Council's decision to award the contract to a competitor, arguing a breach of the Public Contracts Regulations 2006. This triggered the automatic suspension of the award. The Council applied for the automatic suspension to be lifted.
The court granted the application. The court confirmed that in deciding whether or not to lift the suspension the American Cyanamid test applied: the court had to decide whether: (1) there was a serious question to be tried (the Court concluded that there was); (2) whether Solent would be adequately compensated by an award of damages (the Court concluded that it would be given that Solent's anticipated profit was identified in its tender; and (3) whether on the balance of convenience the suspension should or should not remain in place. In this case the court concluded that the balance of convenience test was in favour of the suspension being lifted immediately. The Council gave evidence that the new contract would deliver significant improvement to the existing service. Lifting of the automatic suspension was in the interests of vulnerable users who may suffer if the suspension was maintained and damages were an adequate remedy for the claimant. There was no evidence that the lifting of the suspension would materially impact upon its reputation. Whilst Solent had argued that the TUPE transfer of staff would affect the viability of other projects, the court was unpersuaded of this on the evidence. (26 February 2015)

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Heron Bros Ltd v Central Bedfordshire Council [2015] EWHC 604 (TCC)
Claim form which was out of time
This case concerned the award of a contract for the construction of a leisure centre. Heron Brothers issued a claim for damages and a declaration of ineffectiveness of the contract. The Council applied to strike out Heron Brother's procurement challenge on the ground that the claim form was not served within the prescribed time limit.
Under reg.47F(1) of the Public Contracts Regulations 2006, a claim form must be served within seven days of the day on which the claim was issued and there is no power to extend the time for service of the claim form. Heron Brothers sent the Council a draft claim form and particulars of claim before it was issued by the court. Heron Brothers sent the Council a copy of the letter to the court, sent a few days later,  enclosing the claim form for issuing and sealing but it did not send the sealed and issued documents to the Council. The court posted copies of the issued and sealed documents to the Council but those did not arrive until 11 days after the claim was issued and sealed by the Court.
The court refused the Council's application to strike out the challenge on the ground that the claim form was not served within the prescribed time limit. The Court pointed out a potential conflict in the wording of reg.47F and adopted a purposive approach. It held that, in the circumstances of this case,  service of  the unsealed, draft claim form did constitute proper service. In all the circumstances, it was fair and proportionate, as well as being in accordance with the overriding objective of the court procedure rules, to cure the "irregularity" so that these proceedings could be regarded as having been properly brought. (20 March 2015)

Edenred (UK Group) Ltd v HM Treasury [2015] EWCA Civ 326 (CA)
Provision of services between government bodies
This case concerned an arrangement for the administration of the Government’s new scheme for support of working parents, Tax Free Childcare. HM Treasury and HMRC entered into a memorandum of Understanding with NS&I for NS&I to deliver the scheme. E challenged this decision, arguing that the arrangements fell within the public procurement regime and so should have been subject to competitive tendering. They also argued that the arrangements involved a material change to an existing outsourcing contract between NS&I and so required a new tendering procedure). The High Court rejected E's claim and the Court of Appeal dismissed their appeal. (31 March 2015)
The case has now been heard by the Supreme Court but judgment has not yet been handed down. We will send out a note when the Supreme Court's decision is published.

Bristol Missing Link Ltd v Bristol City Council [2015] EWHC 876 (TCC)
Lifting of automatic suspension
BMLL was the incumbent provider of domestic violence and abuse support services. BMLL were unsuccessful in a tender run by the Council for a new contract for those services. BMLL challenged the Council's decision to award the contract to a competitor, arguing a breach of the Public Contracts Regulations 2006. This triggered the automatic suspension of the award. The Council applied for the automatic suspension to be lifted.
The court refused the application. It rejected the Council's argument that there was no serious case to be tried and was critical of the Council's approach to disclosure of documents in the run up to the hearing. The court applied the balance of convenience test and concluded that the advantages to the Council if the suspension was lifted were either non-existent or negligible, while the disadvantages to BMLL were fundamental. The court confirmed that the suspension would remain in force until after the expedited hearing. (1 April 2015)

Leisure services provider and council settle dispute over £120m procurement
Local Government Lawyer reports that Wealden Leisure Ltd has settled its claim against Mid Sussex DC under Art. 56 TFEU and s.2 of the European Communities Act 1972 regarding the Council's award of a concession contract.

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Cases – EU

Azienda Ospedaliero-Universitaria di Careggi-Firenze v Data Medical Services (C-568/13)
Exclusion of specified types of organisation from tendering and subsidised contracts
This case was a request for a preliminary ruling from the ECJ made by an Italian review body. The case concerned an award procedure by the Region of Lombardy covered by Services Directive 92/50. The contract was for the procurement of data processing services in the health sector.
The first ranked tender was submitted by Azienda. Azienda was a university hospital, which provided non-profit-making services but also operated on the market. The price submitted by the Azienda consortium was 59% lower than the next lowest tender, submitted by Data Medical Services. The contracting authority investigated the first ranked tender on the basis that it appeared abnormally low. After doing so it decided to award the contract to Azienda. Data Medical Services challenged the award decision.
The Italian review body decided that, under Italian law which defined which organisations could and could not participate in a tender process, Azienda should not have been permitted to tender for the contract, and that EU law did not give it a right to do so. The decision of the Italian review body was then appealed.
The Italian Appeal Court referred a number of questions to the ECJ. One question was whether EU law allows public entities that receive public funding to be excluded from award procedures covered by the procurement directives. The ECJ concluded that such entities may not be excluded. The ECJ was of the view that all entities that are permitted to carry out activities on the market in general be allowed participate in public sector award procedures.
The ECJ also considered whether it is permitted to reject a tender where it is effectively subsidised by public funds. The ECJ confirmed that this is possible to reject a tender when the funding in question constitutes unlawful state aid. The ECJ also seemed to indicate that the tender can be rejected even when the subsidy is not unlawful state aid, but this is not entirely clear.
The ECJ commented that the fact that there are no measures (such as separate accounts for the tenderer’s market and non-market activities) that make it possible to establish whether state funding is being used for the tender, does not of itself mean that the contracting authority can conclude that the tender is subsidised – the contracting authority must determine this on the facts of each case before rejecting the tender. (18 December 2014)

Generali-Providencia Biztosító Zrt v Közbeszerzési Hatóság Közbeszerzési Döntőbizottság (C-470/13)
Exclusion from procurement procedure for violation of competition rules
This case was a request for a preliminary ruling from the ECJ made by a Hungarian court. The case concerned a contract for the provision of insurance services. The value of the contract was below the threshold of the relevant procurement directive. Generali submitted a tender but was then excluded from the procurement procedure. It was excluded on the grounds that five years earlier it had infringed Hungarian competition rules. The infringement related to vertical agreements with car dealers and car insurance broker. Generali had been fined for the violation. Generali challenged the decision to exclude it from the procurement procedure.  The Hungarian court referred the matter to the ECJ, seeking to establish whether the exclusion was compatible with EU law.
The ECJ concluded that exclusion for violating competition law rules is generally compatible with the Treat. It also held that such an exclusion is permitted under Public Sector Directive 2004/18 on the ground of “grave professional misconduct".  (18 December 2014)

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eVigilo Ltd v Priešgaisrinės apsaugos ir gelbėjimo departamentas prie Vidaus reikalų ministerijos (C 538/13)
Conflicts of interests and bias
This case was a request for a preliminary ruling from the ECJ made by a Lithuanian review body. The case concerned an open procedure covered by Public Sector Directive 2004/18 for purchase of a system for warning and informing the public using mobile telephone infrastructure. eVigilo, an unsuccessful tenderer, challenged the award on various grounds.
One complaint concerned the issue of conflicts of interest and bias. eVigilo claimed that there were conflict of interest and bias on the part of the contracting authority’s experts. This was based on the fact that the specialists referred to in the winning tender were university colleagues of three of the six experts who drew up the tender documents and evaluated the tenders on behalf of the contracting authority.
The ECJ stated various rules relating to the issue of bias in the context of the Procurement Directives. The key points can be briefly summarised as follows:

  1. Member States may treat a procurement decision as unlawful even if it is not shown that the decision-makers who had a conflict of interest were actually biased or if any bias had no actual effect on the decision. 
  2. There is a general duty on national authorities to take appropriate measures to prevent and detect conflicts of interest and take appropriate measures to remedy them when found. 
  3. When a tenderer presents objective evidence of a conflict of interest the contracting authority has a duty to examine the issue. Where appropriate, the contracting authority must request the parties to provide certain information and evidence. 
  4. The burden of proof in deciding when bias exists is on the contracting authority, not the economic operator who complains.

Another issue addressed relating to the time limit for bringing proceedings. In this regard the Court confirmed that time may begin to run only once the tenderer knows or should have known of the violation.
The third complaint concerned permitted award criteria. In this respect the Court indicated that it is permitted to use as an award criterion “how comprehensively tenderers have demonstrated that their tenders satisfy the requirements of the tendering documents”. (12 March 2015)

Ambisig - Ambiente e Sistemas de Informação Geográfica SA v Nersant - Associação Empresarial da Região de Santarém and Núcleo Inicial - Formação e Consultoria Lda (C-601/13)
Use of award criteria –experience of team and qualifications
This case was a request for a preliminary ruling from the ECJ made by the Portuguese Supreme Administrative Court. The case concerned a contract for training and consultancy services which was subject to the Public Sector Directive 2004/18 (the Directive). The contract was to be awarded on the basis of the most economically advantageous tender and the evaluation criteria and weightings were: Evaluation of the team – 40%, Quality and merits of the service proposed – 55%, Overall price – 5%. The criterion concerning evaluation of the team was to be evaluated but taking into account the composition of the team, its proven experience, and the academic and professional background of its members. The question referred to the ECJ was whether, for the award of a contract for the provision of services of an intellectual nature, the Directive prevents use of the criterion relating to the evaluation of the team. The question was prompted by the uncertainties arising from the Lianakis case (C-532/06).
The ECJ concluded that it is permitted to use such an award criterion where the matters listed are relevant to the quality of the performance offered by the contractor. (26 March 2015)

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SC Enterprise Focused Solutions SRL v Spitalul Județean de Urgență Alba Iulia (C-278/14)
Contract below the EU threshold – technical specifications
This case was a request for a preliminary ruling from the ECJ made by the Romanian court of appeal. The case concerned a contract for the supply of computing systems and equipment. The value of the contract was approximately Euro 58,600 which is below the relevant EU financial threshold. The specification stated that the processor was required to correspond at least to an "Intel Core i5 3.2 GHz or equivalent" processor. The tender submitted by SC EFS was rejected on the grounds that it did not comply with the specification. The SC EFS product did, in fact, exceed the specified requirements but the contracting authority rejected the tender because it had established that the processor it specified was no longer in production, although the specified product was still available on the market. It assessed the SC EFS product by reference to the new and current generation of Intel processors.
The ECJ confirmed the well-established principle that the procurement Directives (in this case 2004/18/EC) does not apply to contracts below the EU financial threshold. However,  where there is a certain cross border interest in the particular contract then Treaty principles do not apply. The ECJ was not presented with evidence of cross border interest but it did go on to consider the impact of the Treaty principles in the event that there was a cross border interest. The ECJ concluded that the principles of equal treatment and non-discrimination and the consequent obligation of transparency mean that the contracting authority cannot amend the award criteria during the award procedure. It could not reject a tender on the grounds that it does not satisfy new requirements which were not set out in the tender specification. After publication of the contract notice it cannot reject a tender on the grounds of failure to comply with requirements which are not set out in that notice. (16 April 2015)

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Election 2015: Prime Minister and ministerial appointments
Lists ministerial appointments to the new Government. Oliver Letwin is Chancellor of the Duchy of Lancaster, in overall charge of the Cabinet Office. Parliamentary Secretaries in the Cabinet Office are: Rob Wilson,  John Penrose MP and George Bridges. George Osborne remains as Chancellor of the Exchequer and also becomes First Secretary of State.


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