Public procurement: pre-procurement stage

Early sight of the specification is of course advantageous, but any perceived ‘advantage’ here could be removed by providing all bidders with adequate time to consider the procurement documents and work on their written submissions, once the formal procurement process is commenced. Indeed, we would advocate that as best practice, any documentation produced by the authority and shared with participants of a market engagement exercise should be shared with all bidders (whether or not they participated in the pre-market engagement exercise) along with the rest of the procurement documentation.

In terms of sharing information, the authority should be careful to differentiate between information which should be considered commercially sensitive (e.g. any information which a supplier has provided to the authority and which it may consider provides them with a ‘competitive edge’ such as indicative pricing and solutions provided to other customers which may not constitute public knowledge etc.), and information which should be circulated to all bidders (e.g. information produced by the authority to describe the opportunity such as outline business cases, draft specification etc.).

In terms of sharing information about whether the authority’s requirements are tech agnostic, such information would appear to fall into the latter category, ie, it should be shared with all bidders.

Firstly, Regulation 57(8)(g) of the Public Contracts Regulations 2015 provides that contracting authorities may exclude candidates from a procurement procedure where the candidate concerned has “shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contract, a prior contract with a contracting entity, or a prior concession contract", however this must have resulted in “early termination of that prior contract, damages or other comparable sanctions”. Therefore, it would not simply be enough to argue that exclusion is permissible under Regulation 57(8)(g), if the customer authority is simply unhappy with the candidate’s performance; the authority would need to evidence that the poor performance resulted in early termination, the payment of damages or ‘other comparable sanctions’. The Regulations do not define ‘other comparable sanctions’, however our view is that this is envisaged as similar, serious, consequences of a failure to perform such as the payment of a significant amount of liquidated damages or similar.

Even where the grounds for exclusion on the basis of Regulation 57(8)(g) appear to be met, the candidate concerned is able to propose evidence of ‘self-cleaning’ (see Regulation 57(13), ie, evidence that measures have been adopted by the candidate to demonstrate its reliability despite the existence of a relevant ground for exclusion. However, if the authority considers those measures to be insufficient, the authority may exclude the candidate, but must provide a statement of the reasons for that decision.

Ultimately, in order to rely on previous poor performance, our view is that the authority would need to ensure effective contract management, for example, instigating the dispute resolution procedure and other mechanisms to provide clear evidence of non-performance.

We have set out some further thoughts on this topic in response to the question below about being unable to exclude an incumbent from a re-procurement..

The potential problem which could arise in either scenario is that the incumbent could draft/amend the specification such that it was biased towards their solution and/or creates a scenario where the incumbent’s solution is the only viable offering for the authority. Therefore ideally, the authority would draft the specification itself or instruct an independent third party to undertake this task, particularly if it appears very likely that the incumbent will participate in the re-procurement exercise.

If an authority does not believe it has the expertise to draft the specification itself, or there are reasons why it would not be possible to instruct an independent third party, it may find itself requesting assistance from the incumbent. If this scenario occurs, the authority will need to remain cognisant of the potential issues which could arise as discussed in the paragraph above. In terms of mitigating against this occurrence, pre-market engagement could be helpful as it should draw out instances where an authority’s specification/requirements could be precluding all (or a large section) of the supplier market. Therefore, if an incumbent has drafted, or assistance with the drafting of, the specification, it might be helpful to share a copy of the intended specification as part of the pre-market engagement exercise, prior to producing a final copy/commencing the formal procurement process.

Case law has held that there is a distinction between the natural advantage that an incumbent will have in any re-procurement exercise and an ‘unfair’ advantage (see T-345/03 Europaiki Dynamki v Commission). However, case law has also recognised that differential treatment may be justified where the bidders are not in a comparable position for the purpose of the tendering exercise, albeit such differential treatment should not be “arbitrary or excessive” (see Case T-211/17) Amplexor Luxembourg Sarl v European Commission).

Indeed, in the Amplexor case referred to above, it was suggested that in procurements involving incumbent bidders, an authority may need to allow bidders other than the incumbent a transition phase with extra payment if they need to invest resources to adapt to the particular requirements of the contract, to the extent that such additional remuneration is not arbitrary or excessive. The case concerned a contract to publish procurement notices in the Official Journal. The incumbent was identified as one of the three successful tenderers, however it would only receive a 0.3% payment on top of contract price, while the other two suppliers would get 3%. The 3% figure was intended to finance the implementation costs of the two other suppliers during the transition phase and was designed to restore equal treatment of bidders. It was held that ultimately, there was no obligation on the Commission to neutralise all incumbency advantages, as potentially this could be contrary to the interests of authority in terms of cost and effort. However, it was recognised that a balance needs to be struck between the various interests involved. Therefore, an incumbency advantage must only be neutralised to the extent: (i) it is technically easy to effect; (ii) it is economically acceptable; and (iii) it does not infringe rights of the incumbent or other bidders.

These principles were considered by the Court in the case of AbbVie Limited v NHS England [2019] EWHC 61 (TCC), where the authority had utilised a ‘dummy price mechanism’ to address the fact that certain bidders were able to supply drugs capable of treating the whole market, whereas others did not. Again the Court recognised that the fact those bidders were treated differently did not breach the equal treatment principle, as they were in different situations.

Applying the case law to evaluation of mobilisation costs, in our view there is no obligation on the authority to take further steps to ‘neutralise’ any perceived incumbency advantage, where this is likely to lead to an outcome which does not make economic sense for the authority. However, where this is not the case, the case law seems to suggest that the authority may be required to consider measures to level the playing field. However, those measures should not be “arbitrary or excessive” and would therefore need a considered approach and the approach is likely to be unique to the particular contract in question including the value of the contract, any economic factors (e.g. maximum budgets) and ensuring that this does not place the incumbent in a position of significant disadvantage.

Please see our response to Question 4 above.

We have not seen examples within our team, i.e. where an incumbent has been excluded from a re-procurement solely on the basis it is in the incumbent supplier. We are aware of instances where authorities have reminded incumbent bidders of this right of exclusion in order to encourage compliance with information sharing obligations. Exclusion on this basis should always be the last resort, i.e. there are no other possible measures which could be adopted to neutralise the perceived/actual advantage of the incumbent. If an excluded incumbent was able to present a convincing argument that there were potential measures available to the authority which would eradicate the advantage concerned, however the authority decided to exclude the incumbent in any event, this could give rise to a high risk of successful challenge (e.g. on the basis that the authority’s decision was disproportionate, in breach of the principle of equal treatment and/or was manifestly erroneous).

If a contract is coming up for re-procurement, the Authority might decide to turn to an existing framework and call off from that, rather than run a new competition. If the incumbent is not a provider under the framework it will have no opportunity to win the contract. Given that the incumbent will lose the contract, there is a potential for challenge, so care needs to be taken.

Assuming that the contract with the incumbent says nothing to the contrary, the Authority has the discretion to choose a different procurement route (i.e. the framework) for the re-procurement and has no obligation to provide the incumbent with an opportunity to win the new contract.

The Authority should take care to ensure (and be able to demonstrate in the Regulation 84 report) that this decision is being taken for justifiable commercial reasons and not with the intention of discriminating against the incumbent.

This is particularly true where the loss of the contract will have a significant impact on the incumbent, which may very well try to challenge on the basis that it has “nothing to lose”.

This scenario can be problematic as there are only limited grounds upon which an authority is able to exclude a candidate on the basis of prior poor performance (see our response to question 3 above). However, that is not to say that an authority cannot take previous experience into account as part of identifying the most economically advantageous tender, albeit this would need to be considered carefully.

We have seen scenarios where an authority has required candidates to list relevant contract examples during the selection stage, in tandem with reserving the right to verify the information provided as part of the written response with customer staff. While this could enable the authority to take the outcome of such ‘verification’ into account as part of determining the final score, this would of course be based on a subjective opinion of the supplier’s performance and therefore could be open to challenge by the incumbent. This approach also assumes that the incumbent would list the current contract as a contract example within its selection questionnaire response.

There may be other practical measures which the authority could consider, such as following any mechanisms contained within the current contract to monitor/challenge performance issues. Again, this may assist in reducing any perceived subjectivity if the authority did wish to consider exclusion under Regulation 57(8)(g) of the Public Contracts Regulations 2015.

Where a PIN is being used as a call for competition under Regulation 48(5), certain requirements need to be met in terms of the information required.

If the PIN does not meet these requirements, it will not be a lawful call for competition and the procurement process will be defective. This could indeed give rise to a challenge, particularly if the deficiency is serious. For example, where the PIN does not properly describe the services/goods/works being procured; a supplier might challenge on the basis that it would have bid had it fully understood the scope of the contract. Where a PIN is deficient, any procurement run under it has not been lawfully advertised and therefore any contract awarded is an illegal direct award. This means that the “ineffectiveness” remedy would potentially be available in addition to damages/automatic suspension.

However, if the PIN is not being used as a call for competition (e.g. it is only being used to advertise a premarket engagement exercise), it appears unlikely that this could result in grounds for a supplier to pursue a procurement challenge.

It depends on the type of pre-market engagement the authority is undertaking and the justifications for this. Ultimately, any pre-market engagement activity must not have the effect of distorting competition and must not result in a violation of the principles of non-discrimination and transparency (see Regulation 40 of the Public Contracts Regulations 2015).

In terms of illustrative examples:

• If an authority is conducting a general presentation to the supplier market about a forthcoming opportunity, it may be difficult to justify restricting the number of attendees. This is because the authority could conduct the presentation via an online platform, or if it wished to run an “in-person” event, it could restrict the number of representatives from each organisation attending in this capacity, while at the same time providing a recording of the session online for those who have not been able to secure an “in-person” place.
• If an authority wished to organise more in-depth “one-to-one” sessions, then it seems more likely that restricting the number of organisations participating in this capacity would appear more reasonable. Ultimately, the authority is not obliged to comply with the principle of equal treatment during pre-market engagement (see reference to Regulation 40 above), however if an authority did not accept one to one meetings with all interested suppliers, this could of course be construed negatively and the authority would need to exercise care in respect of allegations of non-discrimination (e.g. if the authority reserved the right to only offer one to one sessions with UK-based organisations, unless this could be objectively justified). A potential way of managing such perception could be to make clear that if the authority receives a high demand for one to one sessions, it will distribute such appointments on the basis of selecting suppliers representing cross-sections of the market in order to gauge as broad an understanding of the market as possible. For example, a proportionate representation of SMEs vs organisations who specialise in ‘X’ and other organisations who perhaps specialise more in ‘Y’ and so on and so forth.