Procurement Update – October 2015

Procurement Update – October 2015

27/10/2015

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Emily Heard

Partner

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 11/15: Acceptance of unstructured electronic invoices by central government authorities
Introduces a new requirement for central government departments and their arm’s length bodies to accept unstructured e-invoices. It applies to invoices submitted by suppliers on or after 30 June 2015. (22 June 2015)

PPN 12/15: Availability of procurement procedures (decision tree)
This PPN contains a new Decision Tree and guidance on the choice of procurement procedure resulting from the Public Contracts Regulations 2015. It also sets out the general policy expectations on procurement that continue to apply. The Decision Tree shows a clear preference for the open procedure as the normal route for in-scope organisations with other procedures shown as exceptions (30 July 2015)

PPN 13/15: Increasing the transparency of contract information
Provides guidance on how to implement the transparency principles published in March 2015. It aims to increase the type and accessibility of contract and procurement data to the public. It applies to all central government departments including their executive agencies and NDPBs. It applies to contracts advertised on or after 1 September 2015. (3 August 2015)

PPN 14/15: Supporting apprenticeships and skills through public procurement
This PPN requires departments, their executive agencies and non-departmental public bodies to consider the opportunity for apprenticeships and skills development in their contracting requirements. These changes apply to contracts with a full life value of £10m or more with duration of 12 months and above. Businesses bidding for relevant contracts will need to propose the number of apprenticeships they expect to create in fulfilling the contract. This projection will be reviewed as part of the tender evaluation process and written into the ensuing contract. The contracting authority will take action if the supplier does not meet its commitment. (27 August 2015)

PPN 15/15: Statistics on utilities procurement contracts awarded in 2013 and 2014
This document explains the requirement for annual statistical returns on utilities procurement contracts awarded in 2013 and 2014. This exercise is for utility sector entities only and not for public bodies purchasing utility products or services (gas, electricity, etc). (4 September 2015)

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Guidance on the Public Contracts Regulations 2015

Cabinet Office: Public Contracts Regulations 2015 – Guidance on 'public/public' contracts
Guidance on Reg.12 of the 2015 Regulations, which sets out new provisions that codify, clarify and develop the case law on whether contracts between public bodies should be subject to the public procurement rules or not. The new rules also cover the circumstances where either vertical or horizontal arrangements fall outside the rules. (26 August 2015)

Cabinet Office: Public Procurement Regulations – Guidance on electronic procurement and electronic communication
This guidance explains the new rules on the use of electronic communications between authorities and suppliers, including electronic auctions (e-auctions) and electronic catalogues. These rules include timing and scope of e-communication requirements, accessibility, security, and exceptions to the mandatory use of e-communication. For the first time, some e-communication stages will be mandatory. (17 September 2015)

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Other policy and guidance

CCS: Short form terms and conditions for goods and services
The Crown Commercial Service has published updated terms and conditions for general goods and services contracts with a value below the procurement thresholds set out in the Public Contracts Regulations 2006. They are designed for small and medium size businesses to provide ‘light touch’ contract terms for low value procurements. (31 July 2015)

DWP: Model terms and conditions for services contracts
These model terms and conditions are applied to all services contracts where the anticipated contract value is over £10,000. (21 September 2015)

HM Treasury: PPP policy note – Early termination of contracts
Some public sector contracting authorities (the "Authority") are considering options for reducing the costs of existing PFI (or PPP2) contracts, consistent with Treasury’s Operational PPP Efficiency Programme and wider objectives for managing public services within constrained budgets. As part of this, the Authority may be considering the potential for the termination of a PFI arrangement by exercising the voluntary termination provisions within the existing contractual terms. Infrastructure UK expects the incidence of voluntary terminations of PFI arrangements to be low, due to affordability challenges and the requirement to be able to demonstrate value for money for the public sector as a whole.
This note sets out the budgeting, accounting and fiscal implications of a voluntary termination of a PFI contract by an Authority, as well as the review and approval process that should be followed. The note supports and expands on the addendum to DAO (Gen) 02/143, which sets out the policy specifically related to the early termination of PFI or PPP contracts, through no fault of the supplier. (22 June 2015)

NAO: Open book accounting and supply-chain assurance
The National Audit Office is calling for Government to negotiate greater access to, and make better use of, information about how much outsourced public services are actually costing suppliers and therefore how much profit they are making. An NAO survey found that such information, known as open-book accounting data, is currently available in only 31% of contracts and that, even then, it is not always received. Based on public and private sector case studies, the report identifies five approaches to collecting and using information on suppliers. It recommends that every major contract has a strategy for the collection and use of information and that every government department has a policy on when it will use open-book accounting. (1 July 2015)

Chartered Institute of Internal Auditors: Outsourcing and the role of internal audit
This report outlines a number of approaches in the private and public sectors to managing the risks associated with supplier relationships, including the practices of internal audit functions. It highlights the importance of internal audit in providing assurance on the proper management of the risks associated with outsourcing. Failure to foresee and manage outsourcing risks can result in service failures, delays in the implementation of new projects, significant additional costs and reputational damage, undermining the cost savings and other benefits that outsourcing is intended to deliver. The report includes several case studies and makes a number of recommendations. (30 September 2015)

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DBIS: Small Business Commissioner – Government response
Sets out the Government's response to the consultation on proposals to create a Small Business Commissioner to act as a disincentive to unfavourable payment practices, and build the confidence and capabilities of small businesses to help them to assert themselves in contractual disputes and negotiate more effectively. The proposals will be implemented through the Enterprise Bill – see the factsheet. (17 September 2015)

Electoral Reform Society: The cost of one-party councils – Lack of electoral accountability and public procurement corruption
This report looks at the savings in contracting between single-party councils (or those with a significant number of uncontested seats) and more politically competitive councils in a pool of 132,000 public procurement contracts between 2009 and 2013. It also calculates their procurement process against a ‘corruption risk index’, looking at ‘red flags’ such as where only a single bid was submitted or there was a reduced length of time between advertising the bid and the submission deadline. It estimates that could be wasting almost £3bn a year through a lack of scrutiny of their procurement processes and argues that one-party councils are around 50% more at risk of corruption than competitive councils. (5 October 2015)

Welsh Government: Wales Procurement Policy Statement
This policy has been developed to support implementation of the recommendations of the McClelland report. It sets out 10 principles for procurement practices and the specific actions required of every public sector organisation in Wales and how they will be achieved. (12 June 2015)

Crown Commercial Service agreements
The CCS has published a list of the CCS agreements currently available through which government and public sector organisations can procure common goods and services. It includes details of when each agreement is due.

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Consultations

Cabinet Office: UK transposition of new EU Procurement Directive – Concessions Contracts Regulations 2016
Sought views on draft regulations that implement the Concessions Directive 2014/23 in the UK from 18 April 2016. The Government consulted on whether the draft Regulations transpose the Directive effectively and in the best way. The consultation closed on 18 September 2015. (21 August 2015)

Cabinet Office: UK transposition of new EU Procurement Directive – Utilities Contracts Regulations 2016
The Cabinet Office has also consulted on draft Utilities Contracts Regulations 2016 that implement the Utilities Directive 2014/25. This consultation also closed on 18 September 2015. (21 August 2015)

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UK - key cases

Edenred (UK Group) Ltd v HM Treasury [2015] UKSC 45
This case concerned an arrangement between the Commissioners of Revenue and Customs (CRC and National Savings and Investments (NS&I), both non-ministerial government departments, for the administration of the Government’s new scheme for support of working parents, known as Tax Free Childcare. Under the arrangement NS&I was made responsible for the administration of the scheme and received payment from CRC to cover the costs of administering the scheme. The details were set out in a Memorandum of Understanding, which is the usual form for inter-departmental arrangements. NS&I had an existing outsourcing with a private company, Atos. NS&I proposed to include additional work arising from the Tax Free Childcare scheme within the existing outsourcing contract with Atos.
This decision was challenged by Edenred as a breach of the Public Contracts Regulations and Treaty principles, Edenred argued that: i) there was an obligation to tender the arrangement proposed with NS&I as it was a public contract; and, alternatively ii) the arrangements amounted to a material change to the existing outsourcing contract between National Savings and Investments and Atos which should trigger the requirement for a new tendering procedure.
The main judgment of the Supreme Court was given by Lord Hodge, with whom their other Lordships agreed. The Supreme Court confirmed the High Court's finding that the arrangement between CRC and NS&I did not constitute a contract for the purpose of applying the EU rules. The Supreme Court concluded that there was no modification to the existing outsourcing arrangements with Atos triggering a new tendering procedure. The contract notice referred to the services being extended to other organisations up to a certain amount, the further services in this case fell within those stated term and so there was no material change. The Supreme Court also commented that even if there had there been a considerable change in the scope of services no new tender would be required. This was because the extension was made under a clear, precise and unequivocal review clause.  (1 July 2015)

Woods Building Services v Milton Keynes Council [2015] EWHC 2011 (TCC)
This case concerns the evaluation process used by Milton Keynes Council when setting up a four year, single supplier, framework agreement for asbestos removal and reinstatement. The estimated value of the framework agreement was £8million. W was an incumbent provider.  W was unsuccessful in the tender for the award by the Council of the new framework agreement. The tender was evaluated using a 60%:40% quality:price ratio. W had submitted the lowest priced tender but when the quality:price ratio evaluation was applied it was not the most economically advantageous tender as it did not score sufficiently highly on quality aspects. The Council awarded the framework agreement to EAS. W applied to quash that decision, arguing that the tender evaluation process was unfair. W argued that the evidence demonstrated a lack of transparency and a failure to treat the tenderers equally and that there were manifest errors in the scores awarded.
The High Court undertook an extensive analysis of the evaluation approach used. The court upheld W's claim and concluded that the tender evaluation process was fundamentally flawed and unlawful. In an unusual move, the Court decided that it would determine the lawful scores that should have been awarded. It undertook a re-scoring process. The court increased the scoring for W's tender by 6 marks, whilst reducing the marks awarded to EAS.  It is important to note that the Court felt able to do this because of manifest errors in the scoring.  This meant that W had submitted the most economically advantageous tender and should have been awarded the framework agreement.
In a separate judgment on remedies the High Court, with the parties' agreement, set aside the Council's original decision and ordered that the Council's records should be amended by reference to the scores as adjusted by the Court. The Court also formally declared that W's tender was the most economically advantageous tender provided to the Council. That still left two live issues:  First, W said that the Court should order the Council to award the contract to them. Second, W said that, in the alternative, they were entitled to an order for damages, to be assessed if they could not be agreed. The Court declined to order the Council to award the contract to W. The Court confirmed that W was entitled to damages at a level to be assessed. (14 July 2015)

In two cases the High Court granted applications to lift the automatic suspension of a tendering process. In both cases the judge was satisfied that damages would be an adequate remedy:

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UK – Freedom of information

Ballan v Information Commissioner [2015] UKFTT 2015_0021 (GRC)
This was an appeal against a decision of the Information Commissioner (IC) relating to a freedom of information application concerning a tender process. In 2012 North East Lincolnshire Council conducted a tender process for a provider to deliver a ‘Leisure Management system’. The contract was awarded to tenderer A after the original front-runner ceased to be in contention. B was an employee of a company which was a bidder. B made an FOI request to the Council for the winning tender documentation or the tender which was initially first choice which was then found to be non-compliant. In that request B stated that that they were not really interested in pricing which she acknowledged may be commercially sensitive, but in the overall responses which might assist them in understanding where they had gone wrong in their tender. The Council refused to provide the information, on the basis that it was exempt under s.43(2) FOIA 2000 as disclosure of the information would, or would be likely to, prejudice their and the relevant bidders’ commercial interests. The IC's decision upheld the Council's decision. B then appealed.
The General Regulatory Chamber dismissed B's appeal. It held that the information was exempt. The GRC found that the cumulative weight of factors favouring non-disclosure very strongly outweighed the cumulative weight of those favouring disclosure. The decision contains a useful analysis of the weighting and balancing of public interest considerations in the context of the disclosure of information relating to a tender process. (28 July 2015)

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News

The Telegraph: Police forces wasting millions by paying 10x more for items
The Telegraph reports that chaotic ordering of basic equipment such as shirts and batons has led to millions of pounds of taxpayers' money being wasted. (6 September 2015)

Monitor: Commissioners in Devon did not breach regulations in transforming community services
An investigation by Monitor has found that Northern, Eastern and Western Devon (NEW Devon) CCG's commissioning of community services did not breached NHS commissioning regulations. However, the CCG will be doing further work in the next phase of its process as a result of the investigation. Monitor opened its investigation after receiving a complaint from Northern Devon Healthcare NHS Trust, which currently holds the contract for community services. The Trust claimed that the CCG had undertaken an inadequate and unfair process in awarding a contract for these services. Monitor’s findings include that: 

  • the CCG’s process was proportionate and enabled it to select a provider from the available options by reference to its commissioning objectives; 
  • the CCG’s process did not breach transparency requirements; 
  • there had not been discriminatory or unequal treatment of potential providers; 
  • the CCG’s process was not affected by conflicts of interest.

(26 August 2015)

Crown Commercial Service: Schools and academies newsletter – July issue
Latest edition of the quarterly newsletter for schools and academies to help them meet the regulations surrounding how public money is spent and achieve best value when buying commonly required goods and services. (8 July 2015)

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