Procurement Pulse - July 2014

by DLA Piper


Word from Cabinet Office is that a consultation paper/draft legislation on implementation of the new procurement directives will be issued over the summer. The Scottish Government has committed to issuing a twelve week consultation towards the end of 2014 with implementing regulations expected to be in place by end 2015.

The areas of particular interest, for those following the transposition process, will be the policy choices on discretionary implementation issues. For example will the Government and devolved administrations promote obligatory division of contracts into lots in certain circumstances, will contracting authorities have the discretion to exclude bidders where there is evidence (short of final judgement) of non-payment of taxes, what will the duration of any exclusion be, will lowest price be retained as an appropriate award criterion, can awarding authorities be required to make payment directly to sub-contractors, what format has been adopted for the "light touch" process to be used in procurement of social and other specific services? We will report in the Pulse on the policy choices taken, and will be holding an Autumn panel event for clients on evolution of the new legislation generally.

In-house award to non-profit organisation : This case is interesting in the context of mutuals and other non-profit spin-offs tasked with running and establishing a business for services previously provided by government bodies.  Here, a mixture of private and public non-profit organisations held majority voting rights in a statutory (non-corporate) body (SUCH), established to provide catering services to public hospitals.  One hospital directly awarded a contract to SUCH. Eurest challenged on the ground that there was no in-house relationship (as established in the Teckal case), and therefore no exemption from following the procurement rules.  On a preliminary ruling, the Court of Justice held that the Teckal requirement that the awarding authority should exercise over the successful contractor a control similar to that which it exercises over its own departments, could not be met where there was private sector involvement in that contractor.  "SUCH's private partners pursue interests and objectives which, however positive they may be from a social point of view, are different in nature from the public interest objectives" of awarding authorities.  SUCH's private partners were "not barred from engaging in economic activity in competition with other economic operators. In consequence, the direct award of a contract to SUCH is likely to offer an advantage for the private partners  over their competitors".  The fact that the private partners held only minority voting rights, and that SUCH was not incorporated as a company, did not affect the Court's decision

C-574/12 : Centro Hospitalar de Setubal EPE ("CHS") v Eurest (Portugal)- Sociedade Europeia de Restaurantes Lda (19.6.2014) (English transcription of the case not available yet)

The Procurement Reform (Scotland) Act 2014 : The Procurement Reform (Scotland) Act 2014 received Royal Assent on 17 June 2014. It applies in Scotland to contracts with a value below the EU public procurement thresholds but above £2 million for public works contracts and £50,000 for other public contracts. The new legislation is intended to enable SMEs, supported businesses and the third sector to access contract opportunities and to encourage efficient procurement practices. It imposes additional duties on contracting authorities including:

  • A general sustainable procurement duty which requires authorities to consider the improvement of the economic, social and environmental wellbeing of their area and the involvement of SMEs and third sector bodies in the procurement process.
  • The publication of a procurement strategy and annual report by high spending authorities.
  • The consideration of whether to impose "community benefit requirements" in contracts with a value of £4 million or more.
  • The publication of notices on a new Public Contracts website.

The Act also gives Scottish Ministers the power to make regulations to govern aspects of the procurement procedures including exclusion of economic operators, selection of tenderers, technical specifications and giving reasons and provides for remedies in relation to such procurement procedures.  The Scottish Government has indicated that the implementation of the Act will be co-ordinated with the transposition of the new EU Procurement Directives with new regulations expected to be in place by the end of 2015.

Authority margin of discretion in evaluating bidder financial standing : A procuring authority has a margin of appreciation when assessing bids, and courts will only overturn any final assessment where the Authority commits a manifest error.  In this case an unsuccessful bidder sought to argue that the successful bidder was financially unstable, and that the Commission should have followed a process akin to the obligation to examine abnormally low tenders.  Balance sheets submitted by the successful bidder showed average losses over a three year period, but insurers had agreed to provide products and professional liability insurance for the duration of the contract, and other third party financial support was available.  The court held that there was no obligation to request and examine more detailed explanations of financial standing.

Case T -4/13 Communicaid Group Ltd .v. European Commission (11.6.14)

Challenging a procurement process - guidance on drafting the claim form : Failure to challenge a procurement within 30 days of the date a bidder knew or ought to have known that the procuring authority was in breach of the procurement rules, will provide the procuring authority with a limitation defence.  Within this very short timescale, not all elements of the claim may yet have manifested themselves. In the Corelogic case, the court held that later served particulars did not fall within the scope of the original claim form, and must therefore be struck out, as they were not made within the 30 day time limit.  The claim form in this case sought a declaration that the Council "was in breach of the Regulations, general EU and/or Treaty obligations and principles and/or an implied tendering contract between the Claimant and the Defendant". Particulars of claim specifically referred to unequal treatment of the claimant. The court held that the more specific claim was within scope, and gave some useful guidance on drafting claim forms so that they comply with CPR Part 16.2 :

  • Only "brief" details are required to describe nature of the claim - whilst it is open to a claimant to be specific about what he/she claims, it is not necessary to do so.
  • When interpreting a claim form, the Court should have regard to the "factual matrix" in which the claim has been prepared.  That might include subsequently served Particulars of Claim, correspondence  and court applications sent or served at or about the same time as the Claim Form. It may also be legitimate to look further back in time for exchanges between the parties, provided such exercise is limited to communications which clearly demonstrated what was intended to be the subject matter of the proceedings which followed.

Travis Perkins Trading Company Ltd v Caerphilly County Borough Council [2014] EWHC 1498 (TCC)

"Right to reserve" in a claim form : The Court of Appeal allowed an amendment to previously served particulars of claim, after the Insolvency Service (IS) disclosed further information relating to the evaluation process in the challenged procurement.  The IS maintained that the amendment was out of time, and not within the scope of the original claim form.  DWF's original claim clearly raised what it called the "Scottish anomaly" - that its score for provision of insolvency related services in Scotland was higher than that for provision of such services in England and Wales, in spite of the fact that the DWF insolvency team experience was based in and derived from England.  It had asked for an explanation of why that might be,  but received no response from IS.  The judge held - "The “right to reserve” in para. 32 [of the claim form]  would be understood by the reasonable reader in the sense that DWF were saying that if or when the reasons for the anomaly were disclosed, they would be relied upon too … In the result I think the Judge was in error to conclude that a new cause of action was being alleged. What was being done was to move from a case based on inference from the anomaly to one based on explanation for it. It remained the same case."  The judge went on to hold that the anomaly was a real issue to be tried - and ordered a partial lift of suspension.  There were four successful bidders.  The suspension as regards the award of a contract to DWF and the next placed bidder remained in place, but was lifted as regards the other three successful bidders.

DWF LLP .V. The Secretary of State for Business Innovation and Skills, acting on behalf of the Insolvency Service  [2014] EWCA Civ 900

Procurement policy note 07/14 - implementing the EU Energy Efficiency Directive :  Above threshold purchases of goods and services by central government departments must be limited to products listed in Energy Information Regulations, 2011 and Energy Related Products Regulations, 2010, or in the case of office equipment, must comply with "Energy Star" Council Decision 2006/1005.  In the case of services procurements tender and contract documents must require the provider only to purchase EIR & ERPR goods for the purposes of fulfilling the contract.  When renting premises for central government use, only premises with specified EPC ratings can be considered.  These strict requirements will not be enforced if the procuring authority can show that to follow them would not be consistent with achieving value for money, economic feasibility, wider sustainability, technical suitability and ensuring sufficient competition.  The UK government is required to encourage other public bodies to take the same approach.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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