Procurement Update - July 2011

This update contains brief details of recent news, legislation, cases and other developments relevant to those involved in procurement work.

If you have been forwarded this update by a colleague and would like to receive it direct please email Claire Booth.

All links are correct at the date of publication.

In this update:

• Policy and guidance
• Legislation 
• Cases - UK
• Cases - Europe 
• Infraction cases
• • News

Policy and guidance

European Commission: Consultation on the modernisation of EU public procurement policy – Summary of responses
The EC has now published the findings from its consultation on Modernising Public Procurement. The EC emphasises a number of key issues which we expect to flow through into their proposals for reform of the EU procurement legislation to be published by the end of the year. Key issues include: 

• the need to simplify the procurement procedures and make them more flexible; 
• the introduction of measures to ease administrative burdens and formalities such as allowing a greater use of the negotiated procedure; 
• drastically reducing the amount of documentation to be submitted by candidates and tenderer; 
• creating a better environment for aggregation of demand and e procurement; and  measures to improve SME access to public contracts.

The issue of strategic use of public procurement in support of other policies, such as environmental and social issues, provoked mixed reactions from stakeholders. The degree to which environmental and social issues will be specifically addressed in reform proposals therefore remains uncertain.
The next steps are for the EC to put forward a proposal for reform of the EU public procurement legislation before the end of 20211. The proposal will then be transmitted to the European Parliament and Council for negotiation. (24 June 2011)

National Audit Office: Lessons from PFI and other projects
This report brings together findings from the NAO's five recent reports on PFI. It also draws on nine other NAO reports on non-PFI projects and the NAO’s wider experience of good practice across the public sector. It concludes that lessons from the large body of experience of using PFI can be applied to improve other forms of procurement and help Government achieve its aim of securing annual infrastructure delivery cost savings of £2bn - £3bon. Government should also do more to act as an ‘intelligent customer’ in the procurement and management of projects. The case for using private finance in public procurement needs to be challenged more, given the spending watchdog’s previous analysis that the cost of debt finance has increased since the credit crisis by 20% to 33%. Also, under the national accounting rules, privately financed projects will often still be off balance-sheet which may continue to act as an incentive to use PFI. The NAO concludes that, in the current climate, the use of private finance may not be as suitable for as many projects as it has been in the past. There has not been a systematic value for money evaluation of operational PFI projects by departments. There is, therefore, insufficient data to demonstrate whether the use of private finance has led to better or worse value for money than other forms of procurement. The NAO calls on the Treasury and departments to identify alternative methods for delivering infrastructure and related facilities services, building on the lessons learnt from PFI, to maximise value for money for government. (28 April 2011)

^back to top

Audit Commission: Going the distance – Achieving better value for money in road maintenance
This report looks at the challenges faced by England’s 152 council highways authorities. It states that between them, council highways authorities are responsible for 98% of the country's roads, spending a total of £2.3bn in 2009/10, yet in response to increasing financial pressure on councils, highways budgets are facing significant cuts. The Commission found that the cost of maintaining roads is now 50% higher than it was ten years ago, in part due to inflation in road materials and construction costs. The report highlights how councils can get more for their money, including cost-saving collaborations with neighbours, asset management to show when road maintenance will be most effective, new ways of keeping residents informed, and weighing short-term repairs against long-term resilience. It includes a series of case studies which demonstrate how some councils have developed strategies that balance growing service demands with reducing resources. (26 May 2011)

DCLG: New Burdens doctrine - guidance for government departments
The Government's New Burdens doctrine commits the Government to fully fund new powers and duties imposed on local authorities. This new guidance sets out the factors that government departments should take into account when considering the costs and savings to local authorities arising from changes to policies and programmes. It states that the Cabinet has agreed that all new burdens on local authorities must be properly assessed and fully funded by the relevant department. The guidance sets out the process that departments must follow when considering new burdens, and includes the definition of New Burdens, the responsibility on departments for handling them, and the process which should be followed in all cases. (20 June 2011)

MoJ: Public sector data sharing protocol
This guidance aims to provide all public sector bodies with information and practical help when they start new projects which may involve the sharing of personal data. The annexes include a flow chart and Legal Guidance on Data Sharing with a summary of the legal framework that governs public bodies' rights and their responsibilities regarding data sharing. (29 June 2011)

MoJ: Bribery Act 2010 – Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010)
The Bribery Act 2010, which came into force on 1 July 2011, creates a new offence under s.7 which can be committed by commercial organisations which fail to prevent persons associated with them from bribing another person on their behalf. An organisation that can prove it has adequate procedures in place to prevent persons associated with it from bribing will have a defence to the s.7 offence.  This statutory guidance helps commercial organisations of all sizes and sectors understand what sorts of procedures they can put in place to prevent bribery.
There is also a non-statutory Quick Start Guide which sets out the key points. (30 June 2011)
See also SI 2011/1441, noted below.

^back to top 

National Audit Office: The failure of the FiReControl project
This report  is highly critical of DCLG's project to replace the 46 Fire and Rescue Services' local control rooms across England with nine purpose-built regional control centres linked by a new IT system. It finds that the project has been a comprehensive failure. It concludes that the FiReControl project was flawed from the outset because it did not have the support of those essential to its success. (1 July 2011)

DCLG: Future of fire and rescue control services in England - consultation: summary of responses
Sets out the next steps for the future of fire and rescue control services in England following the decision to close down the FiReControl project, in light of responses to the April 2011 consultation. It states that the Government's strategy for the future is to build national resilience through local solutions. It also announces £81m funding for England's Fire and Rescue Authorities to help them develop their own solutions for improving resilience and efficiency. All FRAs will be invited to send a summary of their plans and these will be reviewed by DCLG to ensure that the funding offers value for taxpayers’ money and resilience benefits. An additional £1.8m (in total) will be available to fund initiatives from the sector that deliver cross-cutting resilience and efficiency benefits. (5 July 2011)

^back to top

Cabinet Office: Open Public Services White Paper
This White Paper seeks comments on the Government's plans for radical changes to the way in which public services are delivered The proposals are based on five key principles: Choice; Decentralisation; Diversity; Fair access; and Accountability. 

• People are to have a right to choice enshrined in law.
• Services will be opened up to new providers, with diversity the default setting, and the State will need to justify why it runs a monopoly service.
• In selected areas, commissioners will have to seek and fully consider a minimum of three providers when they contract for services, and transparently link payment to results. 
• Communities and neighbourhoods will be able to commission services at "hyper-local scale".
• The Government will consult with local authorities about how to further open up locally commissioned services in areas such as customer contact, property and facilities management, family support, back office services, support for looked after children and housing management. 
• The Government will look at applying the Foundation Trust model to other public services, and will explore extending different models of increased independence and a more diverse provider base to children’s centres – including considering employee mutuals and how to achieve a greater role for voluntary and private sector providers.

There will now be a “listening period” over the summer, enabling a wide-ranging consultation with individuals, communities, public sector staff, providers and others with an interest in how public services are delivered. This will be followed in November by details of how Departments will take forward ideas to implement open public services over the rest of this Parliament, including proposals for legislation. (11 July 2011)
Bevan Brittan has published an overview of the White Paper's proposals and their implications for public bodies: Public services open for business.

^back to top 

Legislation

Bribery Act 2010 (Consequential Amendments) Order 2011 (SI 2011/1441)
This Order, which came into force on 1 July 2011, makes consequential amendments to secondary legislation to take account of the abolition of the common law offences of bribery and embracery, and the repeal of the Public Bodies Corrupt Practices Act 1889, and the Prevention of Corruption Acts 1906 and 1916 by the Bribery Act 2010. The changes include amending reg.23 of the Public Contracts Regulations 2006 to make section 1 and section 6 offences mandatory grounds for exclusion. (9 June 2011)
See also MoJ guidance on the Bribery Act, noted above.

 ^back to top 

Cases - UK

J Varney & Sons Waste Management Ltd v Hertfordshire CC [2011] EWCA Civ 708 (CA)
This is a rare Court of Appeal decision on procurement issues.
V was one of the unsuccessful tenderers for the contracts for the operation of the local authority's 18 Household Waste Recycling Centres for the five year period from 2008 to 2013. V was the incumbent operator at three sites for 2003 - 2008; it tendered for the contracts to operate 17 of the sites, but was awarded none. The invitations to tender consisted of instructions for tendering, drafts of relevant documentation and the conditions of contract, the return schedules and various appendices to the new contract. The return schedules set out the standard of service expected and were used by the local authority to assess the bids as regards customer satisfaction. V submitted that the subject matters of the return schedules were criteria for the award of a public contract and under reg.30(3) of the Public Contracts Regulations 2006, the local authority had been required to identify them, together with the weightings it proposed to attach to them. The court dismissed V’s  claim for damages against the local authority for breach of its obligations under the Public Contracts Regulations 2006.
The court held, dismissing V's claim, that it was necessary to decide whether the standards applied by the local authority were criteria or sub-criteria and, if the latter, whether they had been defined in advance and whether the requirements of ATI EAC v ACTV Venezia (C-331/04) (2005) ECR I-10109 (ECJ) had been satisfied. The definition of "criterion" in the Shorter Oxford English Dictionary (referred to by the judge in the High Court decision) was not appropriate because it would mean that reg.30 required every standard by which a bid was to be evaluated, no matter how minor or subsidiary, to be disclosed, with its proposed weighting. That was impracticable and was not what EU law required. The matters referred to in the return schedules were relevant to the criteria identified in the contract notice. They had been identified in advance, in the invitation to tender. V knew that the information sought by the schedules was to be used in awarding the contracts. The judge at first instance had correctly held that the matters referred to in the return schedules were sub-criteria and that there was therefore no absolute requirement that their weightings be specified in the invitation to tender. Each tenderer had been given the same information and there had been no breach of the principles of equality and transparency. (21 June 2011)
Matthew Mo of Bevan Brittan has written an article that discusses how this Court of Appeal judgment marks a shift in judicial thinking by adopting a narrower approach in
applying the transparency principle to evaluation methodology in contrast to the more
“forensic” standard established in 2008 by the case of Letting International v Newham
LBC. To read the article, please click on this link: Award criteria transparency - A new commercial approach?.

^back to top 

Harry Yearsley Ltd v Secretary of State for Justice [2011] EWHC 1160 (TCC)
This case concerned the procurement of a contract for the supply of frozen food to prisons. HYL was the incumbent supplier and it participated in an electronic reverse auction along with three other tenderers. HYL came third. It claimed that the procurement process was carried out in breach of the Public Contracts Regulations 2006: the criteria and weightings differed from those set out in the ITT; the successful tenderer was permitted to derogate from the Halal standard; there were material changes to the contract post award; the way in which the electronic auction was conducted; and the nature of the debriefing. The Secretary of State applied to strike out the claim, submitting that the proceedings were brought out of time, HYL could not be said to have suffered any loss or damage or to have risked suffering loss or damage as a result of the breaches alleged; and the claims had no real prospects of succeeding on the merits.
The court held that HYL’s claim relating to the electronic auction procedure and rules were out of time. However, the other claims relating to material changes to the contract raised triable issues and should proceed to trial. (12 May 2011)

^back to top 

R (Hoole & Co) v Legal Services Commission [2011] EWHC 886 (Admin) (Admin Ct)
H, a law firm, applied for judicial review of LSC’s decision to reject its tender for a contract for new matter starts in the field of immigration and asylum law in the Bristol area. The tender was submitted online by providing the information required on LSC's internet based electronic portal. HYL’s information relating to the selection criteria had not saved properly resulting in some of the boxes presenting as blank, so HYL was only awarded five points. LSC rejected the tender. HYL submitted that there must have been some inexplicable failure of the LSC's software that failed to retain the options he selected and saved and that led to a divergence between the printed copy and what appeared on the screen; alternatively, the technology supporting the bidding process was so inadequate as to confuse and mislead a reasonably diligent tenderer into believing that the bid had been successfully completed in all material parts when it had not. Also the way that the LSC had behaved toward other tenderers demonstrated that HYL had been treated inequitably and therefore in breach of the general principles of European public law and the duty under reg.4 of the Public Contracts Regulations 2006 to act transparently and treat economic operators equally and in a non-discriminatory way.
The court held, refusing HYL’s application, that on the technical evidence, HYL must have failed to save the submitted information, therefore its failure to complete the selection criteria was not a consequence of technical failure or inadequacy for which LSC was responsible. LSC had an over-riding duty to treat all tenderers equally. Here HYL had failed to supply the information that would have lead them to being ranked in priority. Any general duty to give an applicant an opportunity to correct errors in the absence of fault by LSC yielded to the duty to apply the rules of the competition consistently and fairly between all applicants, and not afford an individual applicant an opportunity to amend the bid and improve its prospects of success in the competition after the submission date had passed. The public contracting authority had to make a judgement call as to how and when general fairness must yield to equal treatment. On the evidence, the claimant had not been disadvantaged by comparison with more favourable treatment of others in the same situation. (15 April 2011)

^back to top 

R (All About Rights Law Practice) v Legal Services Commission [2011] EWHC 964 (Admin) (Admin Ct)
N, a sole practitioner who specialised in mental health law, applied for judicial review of LSC’s decision to reject his tender for a contract to provide publicly funded legal services in the field of mental health in the South-East Coast area. N had submitted his tender using LSC’s internet-based electronic portal but by mistake one of the mandatory forms, the Tender Information Form ("TIF"), had been submitted blank. LSC rejected N’s tender. N submitted that: LSC was obliged, by reason of the obligations of proportionality and good administration derived from the Public Contracts Regulations 2006, to draw the omissions in his tender to his attention and to give him an opportunity to remedy that omission; even if LSC was not so obliged, it had a discretion to do so but failed to exercise such discretion at all or did so without taking all relevant factors into account; and LSC’s policy in dealing with incomplete tenders or in seeking clarification or additional information was irrational or arbitrary or breached the principle of equality of treatment.
The court held, refusing N’s application, that LSC’s rejection of N's tender was not unfair. There was no requirement of proportionality or equality which would justify the TIF being completed and accepted after the deadline and there was nothing which obliged LSC to accept the necessary information submitted after the deadline. LSC’s approach did not show an inequality of treatment towards applicants or indicate an approach outside the terms of the Information for Applicants or the 2006 Regulations, nor could it be described as irrational or disproportionate or arbitrary. An unfortunate error had occurred which would probably mean that N’s legal practice would cease to be viable, but there were wider considerations to be borne in mind, and the due process of tendering, and the position of other tenderers who were entitled to expect equal and transparent treatment, had to be respected. To permit this case to succeed would set a bad legal precedent, be out of line with the approach indicated in other court decisions and could not be justified. (14 April 2011)

R (Harrow Solicitors and Advocates) v Legal Services Commission [2011] EWHC 1087 (Admin) (Admin Ct)
HSA, a law firm, applied for judicial review of LSC’s decision to reject its tender for a contract for publicly funded immigration work in the London area. HSA had submitted its tender using LSC’s internet-based electronic portal but by mistake answered "no" in answering a question as to whether the firm offered a regular drop-in session per week when it did in fact offer such a service. This mistake meant that HAS was awarded 31 points instead of 33. LSC rejected HSA’s tender. HAS appealed, contending that that LSC’s decision was both Wednesbury unreasonable and disproportionate as there was a genuine clerical error which was "objectively verifiable", in the sense that it could be easily and swiftly ascertained that HSA had indeed intended to offer drop in sessions which it had already been providing for some time, and where the consequences of failure were catastrophic for the firm as it might result in the whole firm having to close down.
The court held, refusing HSA’s application, that any proportionality review was not to focus exclusively on the particular consequences for the failed tenderer, however severe though they might be, but the wider principles of good administration and equal treatment came into play and acted as a limiting factor. Unless the mistake was due to fault on the part of the awarding authority or possibly circumstances beyond the control of the tenderer, disproportionality was most unlikely to be established where the tenderer had made a mistake in the bid. Nor was the Decision disproportionate:  LSC had to treat all tenderers equally in terms of getting a properly filled-in and accurate form in on time, and the strict requirements for this tender process were clearly made known in advance to all tenderers including HAS, which had eight weeks to produce and perfect its tender. Proof of actual prejudice was not required so as to render proportionate a decision not to permit a correction. (28 April 2011)

^back to top 

Cases - Europe

Strong Segurança SA v Municipio de Sintra (Case C-95/10)
This European Court of Justice case considered, amongst other issues, the extent to which the detailed requirements of the Procurement Directives apply to non-priority (Part B) services.
The original proceedings in Portugal related to the award by Sintra Municipal Council of a contract for surveillance and security services, which are non-priority (Part B) services and so not subject to the full application of the EU procurement rules under the Public Contracts Directive 2004/18. The Council chose to advertise in the OJEU and ran an open tender process using the most economically advantageous tender as the criterion for award. SS, a company wholly controlled by T SA, was initially recommended by the Council’s procurement board as the selected tenderer. SS had placed reliance on the economic and financial standing of T SA to demonstrate its capacity to perform the contract. The decision to award the contract to SS was revised following a complaint from another tenderer and the Council decided to award the contract to the complainant.
The Portuguese Supreme Administrative Court referred a number of questions to the CJEU. One question was whether the provisions in the Directive which permit tenderers to rely on the financial and economic of third parties in order to demonstrate capacity (a provision which is included in the UK Public Contract Regulations at reg.25(3)) apply in the context of a contract for non-priority services. The court ruled that the Directive does not directly apply this obligation to non-priority services. The court also considered whether the Treaty principles of transparency or equal treatment imposed an equivalent requirement and held that was not the case. In doing so it commented that applying a broad application of the principle of equal treatment such as that argued in this case risked rendering entirely ineffective the distinction drawn between Part A and Part B services provided for in the Directive.(17 March 2011) 

^back to top 

Infraction cases

Spain - legislation on public sector contracts
The European Commission has closed infringement proceedings against Spain over a series of provisions in Spanish public procurement law on modification of public contracts after award as the law in question (Spanish Law 30/2007 on public sector contracts known as the LCSP) has been substantially amended by a new Law 2/2011 on Sustainable Economy (LES). The new regime established by the LES is a welcome step in that it limits the power of the contracting authorities to modify public contracts after award in a way that alleviates the concerns that had triggered the infringement procedure. However, this new regime will be closely examined and monitored by the Commission to ensure its compatibility with EU public procurement directives and with the case law on modification of public contracts and additional works. (6 April 2011)

France - public procurement for the purchase of geographical information
The European Commission has decided to call on France to amend its legislation so as to repeal the provision reserving certain contracts for the supply of geographical information for the Institut Géographique National (IGN). Under French law, State services or bodies must buy their large-scale reference geographical information from the IGN, the integrated geographical information system covering the entire territory of France and which comprises four geographical databases. The Commission takes the view that this requirement is at odds with EU rules on public procurement and that France should have opened up these contracts to competition, as the geographical information in question could be provided, in most cases, by other economic operators. The Commission has sent France a reasoned opinion, the second step in the infringement procedure. If France does not comply with its obligations under EU public procurement law within two months, the Commission may refer the matter to the CJEU. (14 March 2011)

Germany - pension schemes for local authority employees
The European Commission has decided to ask Germany for information on measures taken to comply with a 2010 CJEU judgment (C-271/08) that Germany had failed to fulfil its obligations under EU public procurement rules by directly awarding contracts for group pension services on the basis of a collective agreement without an EU-wide call for tender. The Commission considers that the German authorities have not taken the necessary measures to comply with the judgment of the Court as the collective agreement and the framework contracts are still in place. If the German authorities do not inform the Commission within two months of measures taken to comply with the Court ruling, the Commission may refer the case to the Court for a second time and request the Court to impose financial penalties on Germany. (14 March 2011)

^back to top 

News

Home Office: Police reform to save billions
The Home Secretary Theresa May has outlined her plans to save £2.2bn p.a. across the police force. At the Reform summit on Value For Money in Policing, she stated that savings will be made by introducing better procurement procedures, offering police forces more freedom to determine where money is best spent locally and demanding greater efficiency both on the frontline and in the back office. (29 June 2011)

^back to top