Market Led Proposals

“Market Led Proposals”, such as those being requested by the Department for Transport, are essentially unsolicited bids and are categorised as one of two types:

Cat 1 MLPs  – These are project ideas, concepts, systems or new innovations which meet of the following criteria:

• they do not require public funding either directly or indirectly from central or local government (e.g. grants or public financing guarantees);
• they have no contractual requirements that involve government action (e.g. changes to franchise agreements or usage guarantees); and
• they require no government guaranteed exclusivity over assets or licences.

Cat 2 MLP’s – These are proposals which fail on one or more of the above.

In short, the purpose of categorisation is to indicate to the market that if a business comes armed with Cat 1 proposals the government has the power to discuss the opportunity exclusively with the proposing party/ies. Alternatively if it puts forward a Cat 2 MLP, the proposal may only be taken so far with the proposing party/ies and if the project is approved will be put out to tender in accordance with the Public Contracts Regulations 2015 or Utilities Contracts Regulations 2016 (as applicable to the deal).

The BCLP team attended DfT’s market engagement events introducing MLPs and it was clear to us that the majority of proposals are likely to be Cat 2 MLPs. Projects that require no government funding at all, no contractual obligations or concession (in the form of exclusivity) could arguably get themselves off the ground in any event.  By definition, one submits a “bid” to acquire a benefit or opportunity so if public input is not needed why submit a bid to a public body at all?

The DfT’s guidance suggests Cat 2 MLPs, if successful, will be put to the market at the detailed design stage and the proposing party/ies will not be engaged without competition. So what benefit is there in investing time and resource in developing MLPs and what might the risks be? How can the risks be mitigated?

Clearly there are wider market economic benefits for companies to encourage government investment in their sector. Most large companies would agree with the benefits of connecting with government, having a say on directions of travel and sharing ideas on how to get the market moving. MLP’s may be put together without an expectation of owning the final output on the basis having the opportunity to tender for the proposal has value in itself.

However the MLP requests go further than this and may require something more substantial. If the DfTs request is to be taken as the benchmark, they are looking for proposals at early business case stage, with schemes identified, potential funders lined up and an element of legal and design investment already made. This time and cost is clearly at risk if the government is not in a position to award your business the job and puts your ideas to the market in a full competition. There is no guarantee you will win your “own” project.

However while the government has said that it will tender all successful Cat 2 MLPs, there is no reason why it should if there are no procurement law or state aid reasons for doing so.

Depending on the nature of the MLP, early legal engagement may be beneficial to understand whether there is a way of contractually structuring your proposal to avoid the engagement of the procurement regulations at all. For example, a project structure that involves no contract with specific obligations to deliver works or services to the public body or utility will not be covered.

There are also a number of exemptions, the most relevant being the ability of a Utility/Public body to negotiate directly with a company where that company owns some kind of exclusive right e.g. a vital land interest or intellectual property needed to deliver the project.

The general state aid requirement that all deals between public and private sector must be on the basis of arms-length terms i.e. “best consideration reasonably obtainable” can often be satisfied by independent valuation/assessment rather than tender process.

In other words, not all Cat 2 MLPs may need to be tendered and discussions could be had with the department as to whether the procurement requirements would apply before significant investment is made on specific schemes.

What about my Intellectual Property Rights (“IPR”) and Confidential Information?

If this is not the case and the relevant government department is determined to test the proposal on the market then what are the implications for your rights in respect of any valuable commercial know-how and other IPR? Is there any advantage to making available your potentially key IPR prior to any tender process?

The DfT’s guidance note suggests that while they will make every effort to protect commercial sensitive information and IPR, they can give no ironclad guarantees due to the application of the Freedom of Information Act 2000 and the Environmental Information Regulations 2004.  Essentially all information held by public bodies is potentially disclosable. However both sets of legislation is subject to exemptions where commercially sensitive information or confidential information is concerned so in theory this should not be a bar to protecting private sector know-how.

The real risk comes through the procurement process. Under Regulation 39 of the UCRs and 21 of the PCRs a utility/public body may not disclose information which has been forwarded to it by an economic operator and designated by that economic operator as confidential. But this is without prejudice to existing legislation (such as FOI and EIR) and any other provision within the Regulations e.g. the obligation to properly advertise the opportunity; the overarching obligation to provide all bidders with equal information and to ensure an even playing field; and the obligation to provide information on winning tenders to unsuccessful bidders.

In the case of MLPs, the duty of confidentiality must be balanced in particular against Regulation 59 of the UCRs and 41 of the PCRS which deals with where a bidder has advised the authority or had prior involvement in the preparation of the procurement. In these circumstances the utility/authority must take appropriate measures to ensure that competition is not distorted by that tenderers participation.  This may mean communication to other candidates and tenderers of relevant information exchanged in the context of or resulting from the involvement of the candidates or tenderer in the preparation of the procurement or in a worst case scenario actually excluding the entity from bidding.

So Contracting Authorities have a large discretion to balance the confidentiality obligation against others and come down on the side of disclosure. If the information has been shared in the first place in full knowledge of this discretion there is little protection for the private contractor.

Is my IPR at risk?

In most instances, putting forth an MLP will represent an opportunity to capitalise on your new developments and innovations or to offer enhanced efficiencies over current systems and technologies. But at what cost?

It is critical to consider what valuable IPR may exist in your project proposal which may need to be protected or excluded from an MLP. It is worth considering the extent to which such valuable information or material is capable of exclusion or the extent to which it may be held back at the detailed design stage.

The types of IPR involved will vary with each proposal, but it is worth considering that some innovative solutions, ideas or concepts that are not already subject to patent protection, will most likely need to be kept strictly confidential in order to retain their market value.  Documents which disclose project finance structures, design proposals or structure diagrams which are unique and constitute commercially valuable know-how or trade secrets, must be kept confidential in order to preserve their value, if secrecy is the only factor creating competitive market advantage.

These materials may well be covered by copyright but this will only offer protection in respect of direct copying or the creation of derivative works. Copyright protection alone cannot protect the valuable underlying ideas and concepts which may be the driver of true market value.  Further, if such materials or documents disclose detailed concepts and ideas which would subsequently form the basis of a patent application, it is worth keeping in mind that such disclosure (if containing enough details of a patentable invention) could potentially destroy patentability where the disclosure is made under an MLP and not subject to strict obligations of confidentiality.

Some Steps to Mitigate Risk…

It is therefore critical that you undertake an exercise to identify any such valuable material at any early stage so that you can properly consider the merits of potential disclosure of your ideas, concepts, developments and innovations to the broader market.

So how can these risks be mitigated?

Certainly if you’re thinking of responding to a MLP request it is worth obtaining procurement advice prior to submission to see if the proposal would give rise to an obligation to OJEU or could be restructured to avoid the need to do so.

If the risk of the project being put to tender is unavoidable:

• ensure all MLP documentation is marked “Strictly Confidential and Commercially Sensitive”. It must be clear that no project should be progressed to market or otherwise on the basis of your ideas without your consent if there is any proprietary information included.
• be prepared to offer different bid teams to the team engaged in the pre-market discussions.
• Approach discussions having a view to the contents of any OJEU Notice or Invitation to Tender the utility/authority might put out to the market. What aspects of the project do you consider is the outline proposal that you would be happy to see described in any public documents and shared with your competitors and what aspects of the project do you consider your special “solution” or USP that you might include in your own tender? If you are clear on this from the outset it will make it easier for the utility/authority to tread the line between protecting your IPR and maintaining a level playing field.
• It may be necessary to structure your proposal in a way that provides the outline but preserves your solution or USP for your own tender.
• In respect of your IPR, always carry out an audit of your project materials to identify anything that is part of your solution or USP that may be potentially valuable commercial know-how, a trade secret, or which may disclose the details or workings of a patentable invention. Where such sensitive materials are present, you will need to decide if the core value lies in protecting the  information or if more is to be gained by creating an opportunity to work on the potential project (understanding that your materials may end up being disclosed to the market and your competitors).
• If the core value resides in keeping the information secret and confidential, remove it from your proposal. You may then have to devise ways of describing or referring to the key innovation, without directly disclosing it.
• Where possible, reduce the level of detail disclosed or preferably hold-back the critical element of the proposal which contains commercially sensitive information.
• If your proposal discloses an entire system which is innovative as a whole, try to link the operation of the system to a proprietary or patented technology which you own or control the use of. This will at least ensure that a royalty stream can be secured or extracted in the event that the proposal is awarded to a third party after going to tender.
• In the event that you are considering linking your proposal to use of a patented technology (in order to extract a royalty), keep in mind that procurement rules may require that you make the patented technology available on FRAND terms.

Conclusions

DfT have introduced MLPs into the UK infrastructure market, but we also anticipate there will be similar initiatives from other UK Government departments / utilities (i.e. through direct procurement initiatives) looking for ideas and innovation against a backdrop of reduced budgets.

Producing MLP’s can undoubtedly produce dividends, but understanding the value of your IPR and how to protect it and the procurement parameters the utility/authority will be constrained by will be vital to prevent unpleasant surprises down the line.