Regulatory Outlook | Regulated Procurement | July 2018

Written on 26 Jul 2018

Current issues

Central government to include ‘social value’ as criteria in awarding contracts

The UK government has announced a package of measures in response to the collapse of Carillion, following political pressure to avoid a similar situation in future.

The government has proposed amendments to the Social Value Act 2013 to require central government bodies to explicitly evaluate ‘social value’ as an award criterion for all major procurements, where appropriate. The intention is to encourage more charities, mutuals, cooperatives and social enterprises to bid for contracts (and stand a better chance of winning).

The current procurement rules require public bodies to consider setting appropriate award criteria based on social, economic and environmental factors, but they are not required to do so. The proposals do not appear to extend to local government and other non-central government bodies at this stage.

The package also includes proposals to require government suppliers to publish data on how they plan to address key social issues and disparities, such as gender pay, ethnic minority representation and modern slavery.

The package also includes measures to ensure business continuity, such as:

  • requiring key suppliers to develop “living wills” – contingency plans so that, in the event of a Carillion-style collapse, public services will not be jeopardised in the short term; and
  • enhanced measures to protect suppliers from cyber attacks.

Need to give adequate reasons for scores in public tenders

Two NHS Foundation Trusts have been successful in a procurement challenge against a local authority.

The court held that the inadequacy of the reasons given by the Council was such that the court was not able to determine whether the scores awarded by the Council contained manifest and material errors.

The case serves as a reminder to contracting authorities of the importance of maintaining thorough records of decisions made at every stage of the evaluation process in order to justify scores if challenged at a later stage. Such records are required in order to comply with the Public Contracts Regulations 2015, but are often overlooked by contracting authorities.

Labour promises changes to public procurement

The Labour party has promised that, if elected, it would place a moratorium on “significant” outsourcing contracts by the Ministry of Defence and review whether existing contracts should be brought back in-house.

The announcement follows the decision by the Ministry of Defence to award a £500m contract for military fire and rescue services to Capita, despite Capita  achieving the highest possible risk rating in the MoD’s internal risk assessment.

Shadow Defence Secretary, Nia Griffiths, announced Labour’s promise to introduce “a clear presumption in favour of public contracts being delivered by the public sector“.

UK companies shut out of Galileo Satellite initiative

A majority of EU Member States have voted in favour of commencing the procurement of the next round of contracts for Galileo, an £8bn satellite navigation system intended to rival the US-controlled Global Positioning System.

The project is being coordinated by the European Commission and European Space Agency.  The UK has, so far, taken a central role in the design and build of the project.  However, due to the continued uncertainty around Brexit, UK firms are likely to be excluded from the procurement process if it is commenced before negotiations about the UK’s future position in relation to Galileo have been finalised.  Even if negotiations are concluded in the coming months, it will likely be too late for UK firms to participate in the procurement process for the next round of Galileo contracts.

If the procurement goes ahead, the loss of opportunity would be a blow to the UK defence industry.  The UK continues to lobby against commencing the next procurement until Brexit negotiations (in relation to Galileo) are complete.

In Focus: Brexit

Is any new EU legislation expected to come into force and effect before the end of the transition period?

There are no major legislative changes to public procurement law proposed at EU level that are likely to come into force before the end of the transition period.

Is a new regulator needed, or do additional powers to be given to an existing regulator?

A new regulator will not be needed to regulate public procurement post-Brexit. Remedies for breach of the regime will continue to be a matter for the High Court.

Is there an existing “equivalence” or “recognition” regime for recognising Third Country regulatory regimes?

The EU is a signatory to the WTO Government Procurement Agreement. The GPA is a multilateral agreement by which signatory states provide access to suppliers/contractors from other signatory states to tenders for certain types of public contracts on a reciprocal basis, depending on which schedules to the GPA the states sign up to.

The UK government has indicated that the UK intends to sign up to the GPA in its own right after Brexit. If so, this would provide UK suppliers/contractors with access to tenders for EU public contracts broadly similar to that which they currently enjoy.

Does current UK government policy mean that (subject to the terms of a future trade agreement between the UK and the EU) material changes to regulation or enforcement are likely post-Brexit?

In theory, after the UK leaves the EU, it will no longer be bound by EU procurement rules, so would be free to change procurement rules to ‘cut red tape’, to reduce bureaucracy, to assist SMEs and, potentially, to favour domestic suppliers/contractors.

However, any future trade deal between the UK and the EU may well include a term providing for continued (fair) access to each other’s markets. As noted above, the UK also intends to accede to the GPA, which would require it to continue to provide access to other signatory states.

There may, though, be scope for the UK to make some changes, such as to the remedies regime, or to make further provisions to support SMEs or take further account of social and economic factors, which could support local suppliers/contractors.

What should businesses be doing now to prepare for Brexit?

For businesses that tender for public and utility contracts in EU Member States, but are not domiciled there or do not currently have a registered base there, a failure by the UK and the EU to reach a deal that covers public and utility procurement would, on the face of it, mean they may not be able to bid for those contracts after the end of the proposed transition period (or sooner, if the Withdrawal Agreement is not ratified).

If the UK becomes a signatory to the GPA though (as discussed above), there may not be any significant changes to procurement rules in the short term.

In order to preserve the right to bid for future public and utility opportunities in the EU in the event of a hard Brexit, businesses could consider setting up a registered office in another EU Member State.  If the Withdrawal Agreement is ratified, such alternative arrangements for bidding for future EU opportunities would not need to be in place until 31 December 2020. However, as we are not likely to get certainty on the Withdrawal Agreement until late 2018, businesses may wish to explore contingency plans now.

Dates for the Diary

Q3 2018

 

Judgment is expected from the Court of Appeal in Faraday’s challenge against West Berkshire’s decision to enter into a development agreement in such a way as to avoid running a procurement under the Public Contracts Regulations 2006. Faraday’s appeal centres on the legality of inserting an ‘option’ into the development agreement that allows the contractor to choose to take on a legal obligation to redevelop the works.

If Faraday’s appeal is successful, it will introduce a fundamental change to the way in which contracting authorities can procure development agreements without being obliged to follow the public procurement rules.

Q4 2018

The Secretary of State for Defence is due to announce whether changes to the Single Source Contracts Regulations 2014 (SSCR 2014) proposed by the Single Source Regulations Office, following public consultation, will be implemented.

SSCR 2014 governs the profit and costs allowed to be charged by contractors operating in the defence sector under Ministry of Defence contracts where there has not been a competitive regulated procurement process leading to the award of the relevant contract.

Q4 2018

The independent inquiry into the Nuclear Decommissioning Authority’s failed procurement of decommissioning contracts for the Magnox nuclear power sites, resulting in settlement with claimants in excess of £100m, is expected to conclude during late 2018.

An interim report published in October 2017 set out criticism and recommendations in respect of four key themes, covering: the design of the procurement process; the conduct of the competition; certain resourcing issues; and governance and assurance.  We expect that the final report will have a guiding influence on the design and conduct of future major government project procurement.