Procurement news blog

The Government has confirmed that the Competition and Markets Authority (CMA) will be the regulator for any State aid regime which is adopted for the UK post-Brexit.

Responding to the House of Lords EU Sub-Committee’s report, following the Committee’s inquiry and call for evidence on the impact of Brexit on UK competition policy, the Government acknowledges the need for a UK-wide State aid regime following exit from the EU (the existing EU State aid rules will continue to apply during the transitional period with the European Commission continuing its responsibility for approving and monitoring aid).  Whilst the Government’s longer term decisions on State aid control will be influenced by the outcome of the EU / UK future trade negotiations, without prejudice to these, the Government is of the view that the UK should be prepared to establish a full, UK-wide subsidy control (State aid) framework, with a single UK body for enforcement and supervision, at the point this is required.  A functioning State aid regulatory regime is seen to be a key part of ensuring fair competition both internationally and within the UK’s internal market; and subsidy controls ensure government interventions are smart, targeted and have incentive effects. 

To ensure any future UK State aid regime is operable, the Government believes the CMA will be best placed to take on the role of independent State aid regulator. This role reflects the CMA’s experience and understanding of markets as the UK’s competition regulator and the independence of its decision-making from Government.  Establishing a clear regulatory function should, according to the Response, ensure the State aid rules will be operated fairly throughout the UK internal market.

Coinciding with the Government’s Response, the CMA has now announced two new appointments through its twitter feed:  Sheldon Mills takes on the role of interim Senior Director for State aid and Juliette Enser as interim Project Director for State aid.

The full text of the Government’s Response (covering both State aid and wider competition policy) is available here.

Have you seen our new Procurement Portal page on State Aid? Click here to read our helpful guide to when State Aid issues may arise and how you might structure your procurement project so as to avoid the application of the State Aid rules.

Posted by Ruth Smith
Mills & Reeve LLP

A new Procurement Policy Note (PPN) from the Crown Commercial Service requires in-scope organisations to take action to update their terms and conditions to include new obligations on suppliers relating to supply chain visibility. Check below to see if this applies to you and, if so, what you need to do.

In scope organisations

The PPN applies to all Central Government Departments, Executive Agencies and Non-Departmental Public Bodies (NDPBs).

What’s required?

For all new procurements commencing from 1st May 2018 which are covered by the Public Contracts Regulations 2015 and which are valued at over £5 million per annum, in-scope organisations must update their contract terms and conditions to include clauses which place new obligations on successful prime supplier(s) to:

• advertise on Contracts Finder, sub-contract opportunities arising from that contract with a value above £25,000; and
• report on how much they spend on sub-contracting and, separately, how much they spend directly with SMEs and VCSEs in delivering the contract.

The standard clauses for inclusion in the contract with the prime supplier are provided in the Annexes to the PPN.

Prime supplier to advertise sub-contracting opportunities

The obligation on a prime supplier to advertise sub-contracting opportunities does not apply to sub-contracts arranged or existing prior to the award of the contract (e.g. as part of the tender process).

The inclusion of this new contract condition, requiring the prime to advertise sub-contracts over the specified threshold, must still be relevant and proportionate to the subject matter of the contract. The PPN acknowledges that there may therefore be some exceptions when inclusion of this condition will not be required, or where the threshold for advertising should be increased. For example, if national security interests mean sub-contracts cannot be openly advertised; or if the £25,000 threshold for advertising would be unduly burdensome in the specific circumstances. The test of what is relevant and proportional must be considered on a case by case basis and according to the specific circumstances of the contract.

Beyond advertising, the standard clause does not specify how the prime should conduct the procurement of the sub-contract but there is an expectation that a reasonable time period is given for potential sub-contractors to respond.

The prime should also update the Contracts Finder notice within 90 days of the award to include the appointed sub-contractor(s) details.

Providing data on supply chain spend with SMEs

This further new contract condition requires successful suppliers to provide in scope organisations with data on their direct spend with SME/VCSEs in the supply chain relating to that contract. The data provided, at frequencies to be specified by the in scope organisation, must include:

• the value of contract revenue sub-contracted; and
• the value of contract revenue subcontracted to SMEs or VCSEs.

Again, inclusion of this requirement is still subject to the test that the obligation is both relevant and proportionate in the circumstances.

For further details, the PPN (including the suggested standard clauses for inclusion in contracts) is available here.

Posted by Ruth Smith.

Anyone involved in a project which benefits from European Structural and Investment Funds ought to be aware of the risks of failing to fully comply with European procurement rules when purchasing works, goods or services for the project. These projects are frequently subject to rigorous audit and, where evidence of procurement non-compliance is identified, the European Commission takes a very strict approach. Aside from any potential risk of challenge from suppliers, the Commission can also require a financial correction (i.e. repayment) of up to 100% of the EU funds originally granted (together with interest on this amount). This is the case whether or not the funds have already been spent. Where the original EU grant is significant (often £millions) facing a 100% financial correction will not be good news!

In the light of these risks, based on its experience of past audits, the European Commission has identified some of the most common ‘school boy’ procurement errors that have been made and which have resulted in a financial correction. These are included in its recently produced guidance for practitioners. The guidance has been developed to help practitioners steer a safe and lawful path through the public procurement maze.

Working through the main stages in any procurement life cycle, the guidance uses traffic light symbols to highlight ‘risk of errors’ (red) and ‘guidance on steps to help achieve compliance / good practice’ (green).

It also includes some helpful checklists which can be used as a procurement progresses to check compliance at each stage.

Whilst designed specifically with EU funded projects in mind, the guidance is equally relevant to any procurement which is subject to the EU procurement rules (in the UK the Public Contracts Regulations 2015) and is well worth a look.

Details of the guidance are available here.

Posted by Ruth Smith, Mills & Reeve LLP

What do you do when you’re a successful bidder and a challenging bidder seeks disclosure of confidential documents contained within your tender? Whilst instinct might be to vehemently oppose this, one successful bidder has recently had to pay the price (in costs) of doing so.

The facts

This was a procurement claim brought against Merseytravel by an unsuccessful bidder, Bombardier Transportation UK Limited (“Bombardier”) in the Technology and Construction Court (“TCC”). The successful bidder was Stadler Bussnang AG (“Stadler”) who was not a party to the proceedings.

Bombardier made an application relating to disclosure of what were termed “highly sensitive documents” (“HSD”). The HSD included elements of Stadler’s tender. The most important aspect of Bombardier’s application was that disclosure of the HSD should be to all persons within the confidentiality ring, not just the lawyers. This was because of the difficulties they were having in understanding Stadler’s tender.

The Defendant, Merseytravel, took a neutral position on the application but Stadler opposed it.
The TCC granted the majority of Bombardier’s application (save for a request to add an additional named person to the confidentiality ring). The question then arose as to the costs of the application and who should be responsible for these? The TCC noted that this was a potentially important point for procurement cases as it concerned the potential liability for costs of a non-party (in this case Stadler), who will often be the successful tenderer.

The law on liability of a non-party for costs

Although cost orders made against non-parties are to be regarded as “exceptional”, this means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such "exceptional" case is whether in all the circumstances it is just to make the order, which will inevitably be largely fact specific.
An important consideration will be whether the party against whom costs are to be awarded was in fact the ‘real party’ to the litigation (a critical factor being the nature and degree of their connection with the litigation).

The Courts have also repeatedly held that the trial judge has a wide margin of discretion when considering orders against non-parties.

Decision

Applying these principles, the TCC decided that Stadler should be responsible for Bombardier’s costs in relation to the successful aspects of its application (being the majority of the costs claimed). In deciding this, the TCC made the following points:

• Stadler should have agreed to the application and its objections were unreasonable. The Court rejected out of hand, Stadler’s allegation that Bombardier was using "a tactic routinely deployed by the claimant…to gain access to highly confidential and sensitive material". Stadler went on to allege that, in their view, Bombardier was seeking to deliberately misuse confidential information to "give [Bombardier] an entirely improper competitive advantage". The TCC said this was a serious allegation which was wholly unjustified on the evidence;

• Stadler were the ‘real party’ here. The opposition to the application came only from them, as it related to disclosure of elements of their tender. The Defendant, Merseytravel, was neutral on the issue;

• there was no need for Bombardier to demonstrate exceptional or unreasonable behaviour on behalf of Stadler (which Stadler had argued was necessary before an order against a non-party could be made);

• even if it had been necessary for Bombardier to demonstrate exceptional or unreasonable behaviour on the part of Stadler, the Court felt that they had done this. It would have been both sensible and proportionate for Stadler to agree to the application and it acted unreasonably by not doing so. Stadler also made an unwarranted and unreasonable allegation regarding Bombardier’s motives for seeking disclosure which the Court had rejected out of hand; and

• no formal application would have been necessary had Stadler consented to the application. Had they done so there would have been no need to trouble the Court.

Court’s concluding remarks – and a warning for successful bidders in procurement cases

Having concluded it should exercise its discretion in favour of Bombardier and make an order for costs against Stadler, the Court went on to state an important point of principle, and warning, for successful bidders in procurement cases where similar issues are at stake: It said: “such an order [for costs] will not always be justified against a non-party; it will always turn on the facts. But in procurement cases, successful tenderers will need to consider carefully the balance between, on the one hand, the undoubted confidentiality of their tender documents and, on the other, the need for a proper and fair disposition of the unsuccessful tenderer's challenge. In circumstances where confidentiality rings are common (as in this case), a non-party will need very good evidence before it suggests that the claimant is seeking the documentation for its own commercial advantage, rather than for the purposes of the litigation. Stadler had simply no evidence of that kind at all.”

Comment

The case is a valuable reminder to successful bidders that, even when emotions are high and the disclosure of confidential tender documents to a competitor are at issue, there is still a need to behave reasonably and proportionately; and to avoid making unsubstantiated, or spurious allegations about the motives of the claimant in seeking the documentation. Failure to do so could see a successful bidder (such as Stadler) facing an unexpected and potentially significant order for costs against it.

Case: Bombardier Transportation UK Limited v Merseytravel (No. 3: Costs) (Rev 1) [2018] EWHC 41 (TCC) (17 January 2018). The full judgment is available here.

Posted by Ruth Smith

The collapse of Carillion brings uncertainty for its employees, suppliers, sub-contractors, creditors and customers. The company’s liquidation raises a wide ranging set of questions, many of which cannot yet be answered. Of particular interest to public sector customers of Carillion will be the procurement law implications, including those of novating/retendering contracts (discussed further below).

It remains to be seen how Carillion will be wound up but the liquidators state that all the options are being explored, including a potential sale of the businesses and assets in whole or part.

A look at the raw statistics shows the scale and potential complexity of the construction giant’s liquidation. Carillion employs around 20,000 people in the UK directly, while many more workers will be affected by virtue of their being employed by major suppliers to or sub-contractors of Carillion, particularly if they are small or medium-sized entities.

Carillion’s customers will also need to consider their position, with the company being party to around 450 contracts (around one-third of its business) with public bodies (e.g. central and local government, NHS Bodies, schools, prisons and transport).

The firm PWC has been appointed to assist in the liquidation by the Official Receiver and has set up a webpage here, with advice to the various different categories of person/organisation affected.

The official line, at least for the present, appears to be that Carillion is continuing to trade for now, that employees should continue to turn up for work, and suppliers to supply goods and services, as normal.

Customers under current contracts are told that for now Carillion will continue to perform those contracts. How long this will continue is not made clear. Customers will be contacted on a contract by contract basis to discuss ongoing arrangements.

Creditors are advised to register with the liquidator.

Implications from a procurement law perspective

The immediately obvious question will be around whether contracts will have to be retendered competitively or whether the provisions of the Public Contracts Regulations 2015 can be relied on to avoid the need to do this.

Joint venture arrangements may contain step-in rights for one of the other partners to take over Carillion’s role in the delivery of the project. Assuming that these step in rights were included in the original deal then it is reasonable to hope that the exercising of the step in right will qualify as a “clear, precise and unequivocal” review clause and, as such, that the change in supplier will be permitted under Regulation 72. Legal advice would obviously need to be sought to confirm this on a case by case basis.

If parts of the Carillion business are sold then it is possible that contracts within that business will “novate” to the new provider as part of an asset sale. Regulation 72(1)(d)(ii) is helpful here as it provides that no retendering is needed where a new contractor replaces the old upon its succession into the position of the initial contractor following insolvency. A key difficulty here, however, is that the successor contractor must meet the selection criteria used when the contract was originally let. This could be difficult to satisfy if the original competition “set the bar high” in terms of the financial and economic standing required of contractors in order for them to qualify.
Where Regulation 72 cannot confidently be relied on, then contracting authorities are likely to have to run a new procurement for the services/supplies/works concerned.

If a Carillion contract were to be terminated abruptly as part of the liquidation, it is potentially possible (but by no means certain) that this could be done without running a competition. This would be in reliance on Regulation 32 (negotiated procedure without notice) on the grounds that the “extreme urgency” test, due to the novel and unforeseen situation, was met. However this exemption is very narrowly construed by the Courts and should only be relied on after legal advice has been taken and the risks considered.

In the longer term there are also likely to be procurement policy implications of the fallout from the Carillion collapse. Noises are already being made in the press about the systemic failures of procurement processes to identify financially sound tenderers (including those who might previously have issued profit warnings), and about the over-reliance in the construction and other sectors on a few dominant PLCs, at the expense of smaller suppliers.

If you have queries around how to protect your position or manage stop-gap arrangements in the interim period, do contact our free to access to set up an initial chat.

By Jenny Beresford-Jones

Just before Christmas we had sight of the judgment in the recent case of MLS (Overseas) Limited v The Secretary of State for Defence. The case highlights how an apparently simple error in drafting an evaluation methodology can lead to significant consequences for the progress of the procurement. It also shows how wide the gap can be between what the contracting authority thinks it has communicated in the methodology and what a bidder's actual understanding of that methodology may be on reading it.

The Contract

The Ministry of Defence (“MoD”) ran a procurement for a contract valued at around £350 million for global port, maritime and other logistical support services for the Royal Navy. Given the sector, the procurement was regulated by the Defence and Security Public Contracts Regulations 2011, as amended. However, the principles on which the case turned apply equally to procurements regulated by the Public Contracts Regulations 2015.

In particular, in running the procurement, the MoD was under a duty to conduct the competition in a manner which respected the EC Treaty principles of transparency, non-discrimination and equal treatment.

The claimant, who was also the incumbent provider, emerged from the evaluation as the most economically advantageous tender, according to the stated award criteria. However, on one particular question (“question 6.3”) relating to ensuring safe working cultures not only within the tenderer's own organisation but also down the supply chain, the claimant’s response was judged to be inadequate as it did not fully address how the tenderer would pass on health and safety obligations to its own contractors. Question 6.3 was a “pass/fail” question; both evaluators and a further moderator marked the response as a “fail”.

On this basis, following requests by MoD for the claimant to clarify its response and a further moderation meeting, MoD marked the claimant's tender as uncompliant and excluded it.

The Claim

The claimant commenced the claim prior to the award of the contract to the second-placed bidder, which suspended the award process pending legal proceedings.

The claimant argued (amongst other things) that the ITT did not state, or at least was ambiguous as to, the consequence of a "fail" score in respect of Question 6.3. This meant, argued the claimant, that the MoD was not entitled automatically to reject its tender for a single fail score. In rejecting its tender, the MoD acted unlawfully in breach of its obligations of transparency and equal treatment.

The MoD argued, in return, that the evaluators and moderator were entitled to conclude that the claimant’s tender failed to meet the minimum requirements specified in the evaluation criteria for achieving a "pass" score for Question 6.3.

The MoD accepted that, due to an administrative error, the MoD had omitted to include an express statement in the ITT that the consequence of a "fail" score would be rejection of the tender, However, said the MoD, it would have been apparent to a reasonably well-informed and normally diligent tenderer from the ITT that a "fail" score for Question 6.3 would lead to automatic or discretionary rejection of the tender.

The ITT

The section of the ITT on technical requirements contained an example technical evaluation table, which showed the weighting and scores available, up to a possible score of 100%, for the following questions:

• Question 1 – Capability;
• Question 2 – Customer Relationship;
• Question 3 – Supply Chain Management;
• Question 4 – Value for Money; and
• Question 5 – Insurance

It was clearly stated that failure to meet a minimum standard of “good confidence" for any of these five questions would result in rejection of the tender.

Significantly though, the technical evaluation for Question 6, Safety and Quality Management (of which question 6.3 was obviously a part), was not included here. The methodology for this question was clearly stated to be a simple “pass/fail” judgment, but it was not made clear that a “fail” result here would amount to a judgment that the response fell below “good confidence” level and would consequently be non-compliant, leading to the rejection of the tender.

The Law

The question before the court was whether the failure to expressly state that a “fail” result on question 6.3 would result in exclusion was a transparency breach by the MoD (as the claimant argued)?

Or, on the other hand, as MoD argued, was it a reasonable expectation that tenderers looking at the ITT should have “put two and two together” and realised that exclusion would be logical consequence of a failure on question 6.3?

The judge considered some of the leading cases in this area, in particular the SIAC and Healthcare at Home cases. These established the principle that the award criteria must be formulated in such a way as to allow all reasonably well informed and normally diligent tenderers (“RWIND tenderers”) to interpret them in the same way.

The judge noted that this was an objective test: the question was not whether it had been proved that all actual or potential tenderers had in fact interpreted the criteria in the same way, but whether the court considered that the criteria were sufficiently clear to permit uniform interpretation by all RWIND tenderers.

The judge also looked at the more recent Nuclear Decommissioning Authority case, where the transparency obligation was considered in the context of the contracting authority’s obligation to adhere to a procurement process/rules that it has previously stated. In that case, the judge said this:

“The principles of equal treatment, non-discrimination and transparency require a contracting authority that has adopted a decision-making procedure for assessing bids to comply with it once it has begun to do so. A different way of expressing the same principle is to state that a contracting authority that has set rules for that procedure must follow them, applying those rules in the same way to the different bidders. Changing the decision-making procedure during the process of assessment risks arbitrariness and favouritism, a risk that it is the purpose of such requirements to avoid”.

Judgment

The judge concluded that the MoD had indeed breached the obligation to act transparently.

The ITT did not indicate that a "pass" score for each part of Question 6 was a minimum standard that had to be met to make the tender technically compliant.

The judge disagreed with the MoD’s argument that a RWIND tenderer should have understood, that a "fail" score for Question 6.3 would be treated as an assessment of lower than "good confidence" and lead to automatic rejection of the bid. The judge said, conversely, that the RWIND tenderer would assume that there would be a difference in treatment between Questions 1 to 5 and Question 6 because the ITT identified different categories of assessment for such responses. The ITT could have stipulated that a "pass" would equate to "good confidence" but did not do so.

Conclusion

The case highlights to contracting authorities the risks of ambiguity in the evaluation methodology and need for the evaluation criteria to make it absolutely and explicitly clear where a “fail” result will lead to rejection of the bid.

Note that this is the case not only in relation to the ITT stage (as in this case) but also during the selection phase. Indeed, Cabinet Office guidance explicitly states that SQ evaluation methodologies must make candidates expressly aware of any SQ questions where a “fail” result will lead to disqualification on that ground alone.

You can read the full judgment in the case here.

Posted by Jenny Beresford-Jones

The European Commission has just published new thresholds for the application of the Public Contracts Regulations 2015, the Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016. These come into force on 1 January 2018. Overall the thresholds are slightly, but not significantly, higher than at present.

Thresholds for contracts regulated by the Public Contracts Regulations 2015

Thresholds for contracts regulated by the Utilities Contracts Regulations 2016

Thresholds for contracts regulated by the Concession Contracts Regulations 2016

Posted by Jenny Beresford-Jones

Organisations that outsource their data processing operations need to ensure that the contractors they use are reliable, and take appropriate steps to keep the information secure. Cybersecurity failures can lead to serious reputational damage, being held to ransom by criminal hackers and sanctions by regulators, particularly where that information includes personal data.

Outsourced processing is normally governed by detailed contractual arrangements dealing with how the data will be stored and used. And, from May 2018, the General Data Protection Regulation, or GDPR, will require tougher and more detailed obligations in contracts.

New requirements for outsourced processing

The new requirements include compulsory details about:

• the subject matter and duration of processing;
• the nature and purposed of processing;
• the types of personal data and categories of data subject; and
• the obligations and rights of the controller.

The contract must also include terms requiring the data processor to:

• act only on the written instructions of the controller (unless required by law to act without such instructions);
• ensure that people processing the data are subject to a duty of confidence;
• take appropriate measures to ensure the security of processing;
• only engage a sub-processor with the prior consent of the data controller and a written contract;
• assist the data controller in providing subject access and allowing data subjects to exercise their rights under the GDPR;
• assist the data controller in meeting its GDPR obligations in relation to the security of processing, the notification of personal data breaches and data protection impact assessments;
• delete or return all personal data to the controller as requested at the end of the contract; and
• submit to audits and inspections, provide the controller with whatever information it needs to ensure that they are both meeting their obligations, and tell the controller immediately if it is asked to do something infringing data protection law.

Impact on public sector contracts

The requirements of the GDPR affect almost all organisations that process personal data in the EEA or about European citizens, with the public sector in the frame alongside businesses. So most public sector outsourcing will have to meet the new requirements.

The UK Crown Commercial Service has issued a Procurement Policy Note PPN 03/17 that explains the new rules and sets out the contractual changes that will be needed for processing personal data in the future. The new requirements will apply to all processing relationships from May 2018, and so as well as affecting new arrangements, existing relationships may need to be updated.

Businesses that are currently supplying data processing services to Central Government and other public sector bodies should expect to be contacted with a view to bringing existing agreements up to date, and ensuring that technical and organisational capabilities will measure up. Equally, those planning to bid for new contracts should expect to see the new obligations in future contracts.

The GDPR also imposes new obligations on processors. These include obligations to keep records of processing and in many cases employ a data protection officer. The PPN notes that public bodies should not accept liability for fines directly imposed on their processors under the GDPR.

Posted by Sophie Burton-Jones