Procurement news blog

We’ve recently had a decision in a case concerning child and adolescent mental health services in Lancashire. The contracting authority was Lancashire County Council. These services have up to now been provided by two local NHS Trusts (the “Claimants”) but on the re-procurement the winning bidder was Virgin Care, which was scheduled to start provision of the services on 1^st April.

The effect of the claim was to “automatically suspend” the award of the contract to Virgin. The Claimants’ scoring on price almost identical to Virgin’s and very close on technical / quality (2 actual marks difference, which equated to 4% on weighting).

The general trend has been for the Court to find in favour of the contracting authority; to lift automatic suspensions and allow contract award to proceed. This judgment is usually made on the basis that, were the Claimant to eventually show that the procurement rules were breached, a payment of damages could be made to compensate the Claimant for having lost out. More rarely, however, the Court maintains the suspension of the award process until a full trial can be held.

Unusually, the Claimants in this case succeeded in persuading the court to maintain the suspension of the award pending the main hearing of the complaint, such that the contract with Virgin was not signed. The Claimants demonstrated that, in the event their claim was successful at full trial, an award of financial damages could not be sufficient to compensate for, for example, the loss of senior staff and lost funding for sustainability and transformation. The judge decided that there would be a significant effect on the operational activities of the Claimants which would affect the quality of the healthcare they provided and which could not be compensated for in mere financial terms. The fact that it was possible in this case to have an expedited trial of the main claim so that the question could be resolved quickly, was also a factor in the judge’s decision to maintain the suspension.

We have now had judgment in that expedited main trial, where the judge upheld the Claimants’ argument and ordered the Council to set aside its decision to award the contract to Virgin. The Claimants argued, amongst other things, that the procurement process had lacked transparency, and that the evaluation had not been done properly, typical grounds on which procurement challenges are based.

The judge reminded us of the legal framework for assessing whether the Council’s running of the procurement process had met the required standards of transparency, non-discrimination and equal treatment. The Council was obliged to give details of the how the process would be run, how the evaluation would be conducted and how marks would be awarded, and to do so in such a way that was objectively capable of being understood by a reasonably well informed and normally diligent bidder (often referred to as the “RWIND tenderer”). Bidders should be put in a position of awareness as to how the Council would mark the tenders, including the relative importance of the various elements of the bid. The Council was then required to conform to the stated process in order to ensure transparency.

The Claimants argument was that the evaluation of Lot 1 was not done transparently as it departed from the stated process. Lot 1 accounted for 95% of the value of the procurement, weighted at 80% quality, 20% price, so representing the lion’s share of the overall contract. The general evaluation scheme set out award criteria; these were further developed (for the quality element) in an appendix using a list of seven questions (to each of which marks were attributed). Each of the seven questions were expanded into a series of sub-bullet points which were not separately given marks. The evaluators were instructed that “Scores must be based on the evaluation sub-criteria identified directly under each question.” In the absence of separate marks for each bullet point, the Judge decided each was to carry equal weighting.

There was evidence that the moderation of the scores given by evaluators was not carried out compliantly – moderators looked first at the scores achieved by Virgin and then went on to try and moderate these by looking comparatively at the Claimants’ tender and scores. This was not the permitted approach as it amounted to using the Virgin bid itself as an evaluation/moderation schema rather than the actual award criteria (set out in the seven questions and associated bullet points). The moderation process also meant that certain points of the original evaluation were altered, and on examination moderators were not always able to identify whether a comment was written in the “original” evaluation or was a product of the later process of moderation. This led the judge to agree with the Claimants’ argument that “a procurement in which the contracting authority cannot explain why it awarded the scores which it did fails the most basic standard of transparency”.

There was also evidence that record keeping fell below the standard required – the notes of the moderation were never agreed upon/signed off by the evaluators, plus there was more concerning evidence that the Claimants had been misled by the Council on the dating of the evaluation notes; the judge took a dim view of this practice, saying “to describe this (as the Council did) as merely “a regrettable episode of poor administration” is, to my mind, an unacceptable understatement.”

All this meant that the Claimant was not put in a position where it could understand how the evaluation had been done and the reasons for finding that the Virgin bid was the most economically advantageous tender. While the judge did expressly state that there is no requirement to disclose a full account of each individual moderating decision, the reasons given and the account of the moderation process must still be sufficient to allow a claimant to understand what has been done in the evaluation/moderation, and why.

The judge upheld the Claimants’ complaint and ordered the Council to abandon its decision to award the contract to Virgin. Presumably, a new procurement will now have to be run unless the current contract with the Claimants can somehow be lawfully extended (under Regulation 72).

The case is a reminder to contracting authorities of the important of adhering to a stated procurement process and of adequate record keeping. It is also a reminder that moderation needs to be done on a bid by bid basis against the award criteria for each tender, and not comparatively against the top scoring bid.

(1) Lancashire Care NHS Foundation Trust and (2) Blackpool Teaching Hospitals NHS Foundation Trust v Lancashire County Council [2018] EWHC 1589 (TCC)

Posted by Jenny Beresford-Jones

Readers of this blog may recall that last year the Supreme Court dealt something of a blow to bidders by limiting the circumstances in which damages for a procurement breach might be awarded (click here to read our blog post on this).

Now, almost exactly a year later, the High Court has further clarified the position on the court’s powers to order that a contract should be awarded to a bidder where a finding has been made that the Contracting Authority breached the Regulations.

This is an order commonly sought by bidders whose key interest is usually to secure a valuable commercial contract particularly where a court has already concluded that but for the Authority’s breach of the Public Contracts Regulations it would have been the winning bid. With some justification most bidders might consider that in those circumstances it is ‘only fair’ that the contract should be awarded to them.

The Public Contracts Regulations prescribe 3 potential remedies for bidders but these do not include a power to order an Authority to enter into a contract with a bidder who has been successful in proceedings. However, the Regulations do not fetter “other powers of the Court” and so in principle it is possible to ask the court to order that the Authority must enter into a contract with a bidder following the outcome of legal proceedings.

However, the High Court has reiterated that such a remedy will be granted only in “exceptional circumstances”.

As is often the case with such pronouncements there is no clarity around what might amount to an “exceptional circumstance” but the way English law stands at the moment it is in fact difficult to identify any circumstance where such an order might be made.

Why so pessimistic?

Well, English courts have had a long-standing aversion to forcing the provision of services. For example, an employee cannot be ordered to work and an employer cannot be ordered to employ someone. Even more importantly though, in most procurements, ordering an Authority to appoint a particular bidder actually places that bidder in a better position than it was in the tender process itself. Usually the tender documents will reserve a right not to award a contract so all bidders go into the process knowing that a contract may not be concluded.

English courts particularly dislike the principle of putting a litigant in a better position than it would have been in the ordinary course of events so as long as procurement documents retain the right not to award I cannot see any circumstance in which a court will take it upon itself to award the contract and oblige the Authority to appoint a previously unsuccessful bidder.

It is fair to say that the English legal system is not a particularly welcoming place for disappointed bidders: ineffectiveness is virtually unheard of, even now an automatic suspension can be relatively easy to lift , the path to a damages claim is not straight-forward and costs can be prohibitive. However, given the knots the UK Government already finds itself in over the terms of Brexit it is difficult to see this at the top of anyone’s list of legislative priorities any time soon.

MLS (Overseas) Limited v The Secretary of State for Defence and SCA Shipping Consultants Associated Limited (as Interested Party)

Posted by Helen Prandy

The fact that the GDPR comes into force today needs no introduction, given the constant bombardment of all our inboxes with requests to ‘opt in’ over the last week.

Whilst you may have heard quite enough about the GDPR for now, there are some important implications in the public procurement/public contracts context.

Specifically, we note that the Crown Commercial Service has just updated its original Procurement Policy Note on Changes to Data Protection Legislation and GDPR – the previous PPN (03/17) has been amended and replaced by Action Note PPN 05/18.  You should now refer to the updated version only.

The new PPN states that "for any contract amendments yet to be agreed and for new contracts to be let after 25 May, you should use the provisions of the new PPN including the updated standard generic clauses at Annex A". This suggests that there is no need to go back and amend model clauses based on those in the older PPN, where these have already been agreed as part of your GDPR preparation work stream.

The scope of the PPN continues to include Central Government Departments, their Executive Agencies and Non Departmental Public Bodies, with other public bodies being advised to follow it given that they are also subject to the GDPR and Data Protection Act obligations.

The original PPN included model GDPR clauses for new contracts and guidance on how to make existing contracts compliant. The updated note was issued to provide greater clarity on questions and issues that arose in response to organisations preparing to use those model clauses in practice. For example:

• The new PPN clarifies the distinction between Controllers and Processors, pointing out that a Processor does not process personal data for its own purposes. A Processor has no interest in the personal data save to the extent it is obliged to process it as a part of its contract with the Controller.
• There are also updates to the model clauses to try to build in some flexibility to reflect the fact that not every contract that involves the processing of personal data will automatically involve a Controller to Processor arrangement. For example, we have become aware of public bodies seeking to incorporate the model “Controller to Processor” clauses into all their contracts on the basis that they were within scope of the old PPN, even when it was not appropriate to do so because the arrangement was in fact a “Controller to Controller” arrangement.
• The original PPN noted that you should avoid liability clauses which purported to protect a Processor from any liability for its GDPR breaches (on the grounds that this would be to undermine the purpose of the new legislation). The new PPN amplifies this with drafting suggestions for liability clauses to ensure a Controller is able to recover the full costs of civil data protection claims or regulatory fines issued by the ICO, where the breach was the Processor’s fault.
• The original PPN acknowledged that in some cases there could be Joint Controllers and explained that there would need to be a transparent agreement between these Controllers as to how the arrangement is to work; the new PPN expands on this with more detail of the features you should include in such an arrangement with a Joint Controller.
• The new PPN also addresses the question of expired/ legacy contracts, where personal data is still being processed (e.g. stored) by a Processor, even though the contract has expired. The PPN reminds us that data being processed like this after today will become subject to the GDPR and this means the Controller must decide whether the data must be retained or deleted. A Processor who has been instructed to delete by the Controller but continues to process, will be in breach of the GDPR.
• The model clauses contain an obligation on the supplier to adopt “protective measures” to protect against data loss. The new PPN has amended this slightly to confirm that the Controller is not obliged to approve the “protective measures” of the Supplier (although it may reject these, acting reasonably). This is to address to concerns raised by Controllers that (1) they would not have the resources to check adequacy of protective measures in each case and (2) that any such approval would amount to a ‘blessing’ of a Processor whose protective measures turn out be insufficient in the event.
• In terms of procurement procedures, the new PPN contains guidance on additional questions and due diligence for new procurements (including a new standard SQ question) and a suggested model question for the ITT/award stage. The standard SQ will be updated in due course but this hasn’t been done as yet. This means that in the interim period, you will need to add the model clauses/suggestions in the PPN to Selection Questionnaires/ITTs.

There is a fair amount to get to grips with here! If you need more information/guidance about the GDPR generally, please take a look at our GDPR Hub where you can find free-to-access resources and, if needed, contact one of our data protection law specialists for an initial chat about your query.

Posted by Jenny Beresford-Jones, Mills & Reeve LLP

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