Procurement Update - June 2016

Brief details of recent key developments relevant to those involved in procurement work

30/06/2016

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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)

Procurement Policy Note (PPN) 02/16: Utilities Contracts Regulations 2016 and Concession Contracts Regulations 2016
Announces that the Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016 have been laid in Parliament and explains they are due to come into force on 18 April 2016. These Regulations implement the 2014 EU Utilities Contracts Directive and Concession Contracts Directive respectively. (17 March 2016)

Procurement policy note (PPN) 03/16: Publication of payment performance statistics
Explains how public sector contracting authorities are to start publishing annual payment performance data under reg.113(7) of the Public Contracts Regulations 2015. After March 2016, and then at the end of each financial year, contracting authorities are required to publish data demonstrating compliance with the obligation to pay invoices within 30 days to first tier suppliers/prime contractors over the previous 12 months. (29 March 2016)

Procurement policy note (PPN) 04/16: Concession contracts threshold
Informs contracting authorities and utilities that the threshold for concession contracts is £4,104,394 (€5,225,000) with effect from 18 April 2016. (17 May 2016)

Procurement Policy Note (PPN) 05/16: Open book contract management
This PPN applies to central government departments, their executive agencies, and NDPBs (in scope organisations). It assists in enabling open book contract management (OBCM) to be used in a fair way depending on the risk level and complexity of the contract. This will ensure it is used on those contracts where the additional cost is justified by the level of benefits and risk. It states that in scope organisations should begin assessing their contract portfolios by no later than 24 June 2016, and mobilising resources to begin implementing OBCM by no later than 24 July 2016. There is also guidance on OBCM. (24 May 2016)

Procurement policy note (PPN) 06/16: Armed Forces Covenant
This PPN provides information on how government suppliers can help support veterans and service spouses and partners. It encourages in-scope organisations to promote the Armed Forces Covenant with their suppliers through their procurement activity, and encourage them to sign up to the covenant. By signing up to the covenant suppliers must be proactive in supporting veterans, and service spouses/partners, by being flexible to their needs when recruiting and during employment. (20 June 2016)

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Policy and guidance

DCLG: Procurement Law – ESIF Compliance Guidance Note (ESIF-GN-1-001)
Updated procurement guidance for ESIF (European Regional Development Fund and the European Social Fund) projects, to reflect the new procurement thresholds that came into force from 1 January 2016. Some clarity has also been provided in Chapter 6 to set out when the Treaty Principles and National Rules apply. It warns that no organisation should apply for ESIF unless it has fully considered and planned how it will be able to demonstrate compliance with public procurement law, the Treaty Principles or National Rules as appropriate in selecting the suppliers of goods, works or services part funded through ESIF. (30 March 2016)

CMA: Detecting and deterring bid-rigging
Bid-rigging is a serious type of anti-competitive activity that can drive up the prices of contracts for vital goods or services and deny purchasers from getting true value for money. The CMA has issued an open letter to procurement and supply professionals on how to detect and deter bid-rigging. It provides information on tools and advice to help purchasers detect suspicious activity and avoid becoming victims of bid-rigging. (20 June 2016)

European Commission: Buying green! A handbook on green public procurement
Third edition of the European Commission's main guidance document to help public authorities buy goods and services with a lower environmental impact. It is also a useful reference for policy makers and companies responding to green tenders. (8 June 2016)

NLGN: All together now – Whole systems commissioning for councils and the voluntary sector
This report examines why a new partnership between local government and the voluntary and community sector (VCS), in which the former uses its commissioning power to fund the emergence of innovative new voluntary sector responses to multiple deprivation, has generally not happened. It concludes that raising the scoring for social value in the commissioning process could have a profound effect on how local government works with its partners and on the outcomes it is able to deliver for citizens. The report sets out a different approach to joint working between the VCS and local government to tackle the challenges of severe and multiple disadvantage, that aims to reconcile the demands that councils face to demonstrate value for money, with a recognition of the factors that make the VCS special. (28 April 2016)

CCS: Model Services Contract
Updated version of the model terms and conditions for major services contracts that are published for use by government departments and many other public sector organisations. The contract has been developed for services contracts with a value over £10m and replaces the ‘OGC Model ICT Contract’ version 2.3. It reflects current government priorities and recommended ways of doing business. There is also guidance and a Statement of Changes, showing what has changed, where, from the previously issued version. (26 May 2016)

NAO: Government commercial and contracting – An overview of the NAO's work
This overview of the NAO’s work on the Government’s management of contracting examines subjects including the Government’s commercial capability, accountability and transparency, and its management of contracted-out service delivery. The NAO and the Public Accounts Committee have acknowledged improvements in the Government’s management of contracts in recent years. But there is much more to be done for government contracting to be effective, meet expected public service standards and provide better value for money for the taxpayer. This overview also looks at areas for improvement including greater transparency of suppliers’ performance, cost and revenue. (25 May 2016)

Social Enterprise UK: Procuring for good – How the Social Value Act is being used by local authorities
This report finds that only 24% of local authorities have a social value policy while 33% say they routinely considered social value in their procurement and commissioning. It concludes that too many councils still see the Act as a duty rather than an opportunity. The Act has been in force for more than three years but is not empowering local authorities in the way it could be. Legal enforcement is needed to ensure social value is given priority in commissioning – the Act lacks teeth and simply asking public sector bodies to consider the creation of social value when commissioning services is not enough. (31 May 2016)

Procurement and trade rules post Brexit
This article by Emily Heard looks at the implications of the referendum result in terms of the procurement and trade rules which have been put in place to implement European law. (24 June 2016)

Procurement Bytes: Dynamic Purchasing Systems (DPS) Byes 1, 2 & 3
We have published a series of three articles that look at practical issues in setting up and running Dynamic Purchasing Systems (DPS). 

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Legislation

Concession Contracts Regulations 2016 (SI 2016/273)
These regulations, which came into force on 18 April 2016, implement the new Concession Contracts Directive 2014/23, which provides rules for the award of concession contracts above the threshold of £4,104,394 by public authorities and utilities. The regulations also implement the Remedies Directives 89/665 and 92/13 so far as they apply to remedies and review procedures for the procurement of concession contracts. Together with the Public Contracts Regulations 2015 (SI 2015/102) and the Utilities Contracts Regulations 2016 (SI 2016/274), they form a package of measures to improve public procurement processes.
See also Bevan Brittan's Procurement Alert. (17 March 2016)

Public Procurement (Amendments, Repeals and Revocations) Regulations 2016 (SI 2016/275)
These regulations, which came into force on 17 March 2016, make consequential amendments, repeals and revocations to primary and secondary legislation as a result of implementing the Public Contracts Regulations 2015, the Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016. They also correct and amend the Public Contracts Regulations 2015, including amendments to transpose Commission Implementing Regulation 2015/1986 establishing standards forms for publication of notices in the field of public procurement. (17 March 2016)

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Consultations

Welsh Government: Consultation on Procurement Regulation in Wales
Seeks views and opinions regarding plans for the introduction of legislation on public procurement activity undertaken by the Welsh Public Sector. The consultation closes on 28 June 2016. (5 April 2016)

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Cases – UK

Newlyn Plc v Waltham Forest LBC [2016] EWHC 771 (TCC)
N was an unsuccessful tenderer in the Council's procurement for new contractual arrangements for bailiffs and enforcement agency services. It challenged the contract award, claiming that the Council had failed to comply with the Public Contract Regulations 2015 (PCR). The Council applied to strike out N's claim.
The court held, granting the application, that the proposed contract for enforcement agency services was a services concession contract and therefore outside the PCR. The Council's decision was outside the PCR, and any application for judicial review would be doomed to fail as a matter of law. Nor was there any question of any automatic suspension preventing the Council from entering into contracts with the successful tenderers. (6 April 2016)

Kent Community Health NHS Foundation Trust v NHS Swale CCG and NHS Dartford, Gravesham & Swanley CCG [2016] EWHC 1393 (TCC)
KCH was the incumbent provider of adult community services in North Kent. Following a re-procurement the defendant CCGs awarded the contract to Virgin Care. KCH issued proceedings which triggered the automatic suspension on contract-making under the Public Contracts Regulations (PCR). The CCGs applied to lift the automatic suspension. The questions for the court were whether damages would be an adequate remedy for KCH and whether the balance of convenience favoured lifting or maintaining the suspension, the parties having agreed for the purposes of the application that there was a serious issue to be tried (the American Cyanamid test).
The court held, granting the application and lifting the suspension, that damages would be an adequate remedy for the Trust and that this question should not be approached any differently in respect of a non-profit public sector contractor than a profit-making private contractor. That analysis appears to conflict with a Coulson J's general statement to the contrary in the case of Bristol Missing Link.
The court further held that the balance of convenience did not weigh substantially in favour of maintaining or lifting the suspension but that the status quo favoured lifting it. A dispute arose as to what the status quo was. KCH argued that as it was the incumbent provider the status quo favoured maintaining the suspension. The CCGs argued that KCH's contract had come to an end so the status quo was to allow it to enter into the contract with Virgin. The court preferred the CCGs' argument.(27 May 2016)

R (Enfield LBC) v Secretary of State for Transport [2016] EWCA Civ 480
The Court of Appeal has dismissed an appeal against a judgment of Elizabeth Laing J dismissing the claimant's application for judicial review of the Secretary of State's procurement of rail services in East Anglia (see [2015] EWHC 3758 (Admin)). The procured rail services would serve an area being redeveloped by the council (named Meridian Water) and the council considered that two trains per hour (rising to four an hour) were vital to the success of its development. The council relied on two emails from the Department of Transport which suggested that the ITT would contain this minimum requirement. The council argued that those emails generated a substantive or procedural legitimate expectation, and/or that the Department failed to take into account the council's development and/or acted unfairly in not including that minimum requirement in the ITT. The High Court had held that the emails did not give rise to any legitimate expectation but even if they had, the Department would have been entitled to depart from it. The Court of Appeal dismissed the appeal holding that no legitimate expectation arose, but for different reasons to those given by Elizabeth Laing J. The Court of Appeal held that the emails were clear and unambiguous, but were mistaken, due to inept performance on the part of Department staff. Furthermore the emails did not give rise to a legitimate expectation because the council had already firmly committed itself to the Meridian Water development before the emails were sent. Finally the Court of Appeal held that even if the emails had given rise to a legitimate expectation it would not have been reasonable for the council to rely on it. (24 May 2016)

Kenman Holdings Limited v Comhairle Nan Eilean Siar [2015] CSOH 170
A hotel owner and operator sought judicial review of a local authority's decision to enter into a development agreement and associated services agreement. By the time of the hearing the parties agreed that the contracts were concession contracts and therefore fell outside the scope of the Public Contracts (Scotland) Regulations 2012. However, the contracting authority had stated in the procurement documents that the competition would be conducted in accordance with the open procedure. The question for the court was whether that gave rise to a legitimate expectation that the principles of the open procedure would be followed, notwithstanding that no challenge could be brought under the Regulations. The court held that the case fell squarely within the principles of Sidey v Clackmannanshire [2010] CSIH 37, namely that if a contracting authority had elected voluntarily to adopt regulated procedures it might thereby create additional rights based on legitimate expectation, and that the reasoning in Sidey was not limited to cases in which the Regulations did not apply because the value of the contract in question was sub-threshold. The case is of interest in confirming that a challenge can be brought by way of judicial review in such circumstances, although the claim failed on the facts in this particular case. (16 December 2015)

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Cases – EU

Partner Apelski Dariusz v Zarząd Oczyszczania Miasta (C-324/14)
Partner brought proceedings against ZOM, the Warsaw municipal cleansing authority, concerning its exclusion from the procedure for the award of a public contract for the comprehensive mechanical cleansing of roadways of the city of Warsaw in 2014 to 2017. Each tenderer was required to submit a list of winter maintenance services for roadways provided in the past three years. Partner submitted that it had supplied 14 services, including two based on the experience of a third party, PUM, which operated in another town 230 kilometres from Warsaw.  PUM gave an undertaking to make its services available to Partner during the performance of the contract and Partner also stated that, for the purposes of the performance of the contract that cooperation was to be governed by a contract between the two undertakings. ZOM rejected Partner's tender, stating that PUM’s knowledge and experience could not be made available without the personal, actual participation of that company in the performance of the contract at issue.
Reliance of the capacities of third parties: The CJEU confirmed the general principle that a tenderer can rely on the capacities of third parties to satisfy selection stage requirements relating to economic and financial standing and technical and professional ability. That is permitted provided that the third party's resources are actually available to the tenderer for the fulfilment of the contract and the tenderer provides evidence to that effect. In exceptional circumstances a contracting authority may be justified in requiring the contract to be delivered by a single economic operator or a limited number of economic operators. This is where, for example, the third party's capacities cannot genuine be transferred to the tenderer for the performance of the contract. In this case the CJEU expressed reservations about whether the road cleaning related services PUM would genuinely be available to Partner.  The CJEU also looked at the issue of whether the contracting authority was permitted to specify the legal nature of the arrangements between the parties. The CJEU concluded that a contracting authority may only do so exceptionally and when it does, the requirements must be related and proportionate to the subject matter and objectives of the contract.
Lots: The proposed winter maintenance contract was divided into 8 Lots. Partner submitted a single bid for the whole contract, comprising all 8 Lots. After the tenders had been opened and during the evaluation process the contracting authority, having identified concerns about Partner's reliance on the resources of PUM, asked Partner for further information about the resources it had available. In its response Partner requested that its bid be considered separately in respect of each of the 8 lots which it identified separately in order of priority, rather than as a bid for the whole contract. ZOM rejected Partner's tender in its entirety. The CJEU confirmed that whilst "clarification" of tenders after they have been received and opened is permitted, amendment is not.  In the CJEU's view Partner's request went beyond mere clarification and amounted to a substantive amendment to its tender which was not permitted. (7 April 2016)

Pizzo v CRGT Srl (C-27/15)
This case concerned the Port Authority of Messina's procurement for a public service contract for the management of waste and cargo residues on board ships. CRGT and two other tenderers were excluded from that tendering procedure as they had not paid the Supervisory Authority on Public Procurement a required fee. The contract was then awarded to Pizzo, the sole remaining tenderer. CRGT sought the annulment of that decision to exclude it from the procedure and compensation for the damage suffered as a result of that exclusion. Pizzo filed a counterclaim, submitting that CRGT should also have been excluded for having failed to submit two separate bank references in order to prove its economic and financial standing. It appears that Pizzo argued that CRGT could not rely on bank reference to prove its standing.  The Sicilian tribunal found that CRGT had been wrongfully excluded as the fee applied expressly to public works contracts, not to service contracts. Pizzo appealed and the tribunal referred two questions to the CJEU.
Reliance of the capacities of third parties: CJEU again confirmed the general principle that a tenderer can rely on the capacities of third parties, regardless of the nature of the links between them, to satisfy selection stage requirements relating to economic and financial standing and technical and professional ability. This is permitted provided that the third party's resources are actually available to the tenderer for the fulfilment of the contract and the tenderer provides evidence to that effect. In this case the permitted reliance on third party capacities includes the use of bank references.
Exclusion on the grounds of failure to pay a required fee: The CJEU confirmed that the principle of equal treatment requires that all tenderers must be subject to the same tender conditions. It also confirmed  that the obligation of transparency implies that all conditions and detailed rules in tender documents must be drawn up in a "clear, precise and unequivocal manner….so that all reasonably informed tenderers….can understand their exact significance and interpret them in the same way." In this case the contracting authority excluded tenderers on the ground that they had not paid the Supervisory Authority on Public Procurement a required fee. The requirements for payment of the fee were, however, not clear and were derived from a broad interpretation of a national law and administrative case law.  The CJEU agreed with the Advocate General's view that this would be particularly disadvantageous for tenderers based in other member states as their level of knowledge of Italian national law and the interpretation of that law would be less than that of national tenderers. In addition, the fact that CRGT had previously provided the services and could therefore be aware of the fee payable was not a relevant argument. The principle of equal treatment and the obligation of transparency would not be complied with if an economic operator is subject to criteria which are not established in the tender document. Economic operators new to the contract would not be aware of the existence of the requirement for payment of a fee. The principles of equal treatment and proportionality mean that an economic operator should be allowed to regularise its position in these circumstances and comply with the obligation to pay a fee within a time period set by the contracting authority. (2 June 2016)

MT Hojgaard A/S, Zublin A/S v Banedanmark (C-396/14)
This case concerns the question of whether a consortium which is participating in a tender process is permitted to change its membership and still remain in the tender process. Banedanmark (BD)  is the Danish railway infrastructure operator. In January 2013 BD advertised a negotiated procedure  with competition for the award of a contract for the construction of a new railway line. The contract notice indicated that BD would invite four to six economic operators to submit tenders and that it would run a three stage negotiated process involving the submission of tenders at each stage.  Five economic operators were invited to submit tenders but economic operator withdrew, leaving four selected economic operators participating in the negotiation process. One of the four economic operators was a consortium comprising two companies, Per Aarsleff (PA) and Pihl. During the course of the negotiated procedure Pihl was declared insolvent. BD wrote to all of the tenderers informing them that it had decided to allow PA to continue to take part, alone, in the procedure. BD explained this decision by stating that PA, which was the leading contracting company in Denmark in terms of turnover for 201 and 2013, satisfied the conditions for participation in the process even in the absence of the technical and financial resources of Pihl. In addition PA had taken on more than 50 of Pihl's staff who were key to implementation of the project.  PA was appointed as the successful tenderer. MT Hojgaard/Zublin which was an unsuccessful tenderer then filed a challenge against this decision with the Danish procurement review body.
The CJEU observed that the Directive (in this case the Utilities Directive 2004/17/EC but the position is the same in the public sector Directive) does not lay down any rules specifically relating to alteration in composition of a group of economic operators that has been pre-selected in a tender process. These details are left for member states to decide.  Neither the Danish legislation nor the contract notice contained any specific rules. The question therefore needed to be examined in the light of general EU law principles – in particular equal treatment and the duty of transparency. The CJEU was of the view that a strict interpretation of the principle of equal treatment would lead to a conclusion that only those economic operators who have been pre-selected can submit tenders and be awarded contracts. The CJEU then went on to explain that this requirement may be qualified "in order to ensure, in a negotiated procedure, adequate competition…" and it commented on BD's reference in the contract notice to inviting four to six tenderers to participate in the process and the implication that BD considered that at least four tenderers were required to ensure competition.  The CJEU went on to hold that it was not in breach of the equal treatment principle to  permit one of two economic operators in a consortium to continue as a participant in a negotiated procedure provided that  (1) the economic operator that continues to participate in the procedure meets the requirements of the contracting authority; and (2) the continued participation of that economic operator does not mean that other tenderers are placed at a competitive disadvantage. (24 May 2016) 

Falk Pharma GmbH v DAK-Gesundheit (C-410/14)
In this case the CJEU was asked to consider whether or not an authorisation scheme for the supply of medicinal products was a public contract subject to the EU procurement rules. A German statutory health insurance fund published an OJEU notice concerning an "authorisation procedure" for rebate contracts for the provision of certain medicinal products. Any supplier which wished to supply the products and was able to demonstrate that it met specified authorisation criteria was admitted to the scheme. All suppliers admitted to the scheme entered into identical, non-negotiable, contracts. The scheme was open to new suppliers for its duration, on the same terms. The CJEU held that this scheme, which did not involve the contracting authority choosing between the interested operators, did not constitute a public contract within the meaning of Directive 2004/18. The CJEU did, however, point out that where the subject matter of an authorisation procedure was of certain cross-border interest, that procedure must be conceived and organised in accordance with fundamental Treaty rules, in particular the principles of non-discrimination and equal treatment between economic operators and the consequent obligation of transparency. (2 June 2016)

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News

Cabinet Office: Government contracts to be open to public for the first time
Announces a series of concrete commitments to maintain the UK’s position as the most transparent government ever. The UK Open Government National Action Plan 2016-18 (NAP) sets out 13 commitments on transparency, anti-corruption and open government. These include commitment to the Open Contracting Data Standard (OCDS) for contracts administered by a central purchasing authority, the Crown Commercial Service – this means that the whole process of awarding public sector contracts will be visible to the public for the first time by October 2016. It will be piloted by HS2. (12 May 2016)


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.

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