State Aid? State What?!

Do you need to think
about State Aid risk on
your procurement project?

Make sure you know what
to look out for with our
handy new guide
from our state aid experts.

Looking to challenge a procurement decision?

Suppliers wishing to challenge have only a short time frame in which to act. Click here for our useful guide.

Which Regulations do you need?

To get up to speed with the various new procurement law regulations, please click below;

> Concession Contracts Regulations 2016 

> Utilities Contracts Regulations 2016

> Public Contracts Regulations 2015 

If you're not sure which regulations apply, click here.

Procurement news blog


June 14, 2018 11:45 AM | Posted by Prandy, Helen | Permalink

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

May 25, 2018 11:35 AM | Posted by Beresford-Jones, Jenny | Permalink

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

April 26, 2018 12:22 PM | Posted by Smith, Ruth | Permalink

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

April 10, 2018 2:28 PM | Posted by Smith, Ruth | Permalink

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.

February 22, 2018 1:33 PM | Posted by Smith, Ruth | Permalink

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

February 1, 2018 10:11 AM | Posted by Smith, Ruth | Permalink

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


January 22, 2018 12:05 PM | Posted by Beresford-Jones, Jenny | Permalink

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

Highlights

Contact Us

The Procurement Portal aims to provide a "one stop shop" for procurement law queries and advice.

Click here to email our team with your query.

Managing and mitigating procurement risk course

This updated course is great for anyone who wants to make informed judgments around procurement risk and be able to handle potentially contentious issues with confidence.

You can access our updated course here.

Subscribe by email

> Subscribe to our blog updates by email

The "FeedBurner" subscription service is provided by a third party and Mills & Reeve LLP therefore accepts no responsibility or liability for this service. Please also refer to our full terms and conditions.

Procurement FAQs

We have over 100 questions and answers on a host of topics, from advertisement to managing a procurement challenge.

> Click here to find out more