Current issues: February 2019

Court of Appeal declares local authority development agreement ineffective

The Court of Appeal, in R (on the application of Faraday Development Ltd) v West Berkshire Council, made the first declaration of ineffectiveness in an English public procurement case. The Court upheld the appeal brought by Faraday Development in its case against West Berkshire Council and declared that the development agreement between the Council and St Modwen for the regeneration of an industrial site near Newbury must be terminated.

The case concerned the Council’s decision to enter into a development agreement without running a competition under public procurement law. The Court of Appeal overturned the High Court’s decision and ruled that the development agreement should have been procured via a competition under the Public Contracts Regulations 2006 (replaced by the Public Contracts Regulations 2015).

This case illustrates the risks to developers and contractors of seeking to keep what are ultimately development agreements (rather than just disposals of land) out of the scope of the public procurement regime.

For more, see our Insight into this important case.

Changes to “social value” requirements for central government procurements

The Cabinet Office has announced proposals for changes to ‘social value’ requirements for central government procurements to come into force by summer 2019.

In a speech at the Business Services Association Annual Chairman’s Dinner on 19 November 2018, Cabinet Office Minister, David Lidlington CBE MP, emphasised the importance of using government procurement to ‘prioritise social value’ in new ways and outlined the government’s proposed approach to social value.

The government will provide departments with a framework of policy areas and specific measures to include in procurements, designed to open access for small businesses and social enterprises. The new model is also designed to provide a standard framework for key social outcomes and metrics to be evaluated in tenders and a first tranche of priority policies, including:

  • removing barriers to government contracts for small businesses and social enterprises;
  • improving skills and employment opportunities for the disadvantaged; and
  • increasing equality and diversity in the workforce.

Mr Liddington used the example of a department letting a contract for a facilities management service, which could specify that opportunities needed to be provided for ex-offenders or young people Not in Education, Employment or Training (NEET) or specify in the letting of a logistics contract that the successful bidder would need to focus on tackling the environmental impact by showing that it will reduce carbon emissions and air pollution in the delivery of the contract.

Court adopts more flexible approach towards limitation period in regulated procurement disputes

Claims arising out of breaches of public procurement law must be brought within 30 days of the date on which the economic operator knew or ought to have known that grounds for issuing the claim had arisen.  This limitation period can be extended up to three months by the Court where there is a ‘good reason’ for doing so.

The Court’s position on what amounts to a ‘good reason’ is becoming less predictable.  Previously, the Court had indicated that it would only be appropriate to extend the deadline in ‘exceptional circumstances’ where a claimant was unable to issue within a 30 day period for reasons of illness or detention of members of the bidding team.  Recently, the Court held that there only needs to be ‘good reason’, not exceptional circumstances, to allow the extension.

This means that, in some cases, the risk of challenge needs to be considered up to three months from the date of actual or constructive knowledge of the alleged breach of public procurement law.

Trends in recent applications to lift automatic suspension

There has been a flurry of decisions in applications to lift automatic suspensions over the last six months (including Eircom, DHL, Bombardier and Lancashire Care NHS FT), that has introduced some notable trends.

  • The question of whether an application to lift the automatic suspension will be granted or denied is becoming less predictable, and is more likely to depend on the view of the judge on the day.
  • Damages, which are usually found to be an adequate remedy for a claimant, have been found to be an inadequate remedy for both claimants and defendants in a number of cases.
  • More cases are being decided on the balance of convenience by considering the public interest.

New standard selection questions on approach to payment

From 1 September 2019, all central government departments, their executive agencies and non-departmental public bodies must include new standard selection questions on approach to payment for any procurements above £5m per annum.

The new questions should be included in section 6.2 of the standard selection questionnaire.  The government has issued guidance on how the new questions should be assessed.

CJEU ruling requiring contracting authorities to disclose the quantity and value of call-off contracts under a framework agreement

The Court of Justice of the European Union (CJEU) has given a preliminary ruling that contracting authorities must state the quantity and value of contracts that can be called off from a framework agreement.  This rule applies to the original signatories to the framework agreement, and any ‘secondary’ contracting authorities who are not direct parties to the framework agreement but are named within the procurement documents as being entities that can call off contracts.

In Focus: No deal Brexit

What would be the impact of a no deal Brexit for UK businesses trading with the EU?

For the purposes of the EU Procurement Directives (covering public; utilities; concessions; and defence) as implemented in each of the Member States, and for procurements run by the EU institutions, UK businesses will become Economic Operators from a third country.  They will therefore not have the same rights in EU procurement competitions as those Economic Operators established in a Member State.

If the UK has acceded to the WTO Government Procurement Agreement (GPA) by 29 March 2019, suppliers will be in a better position.  The current EU Procurement Directives that apply in each Member State implement the GPA commitments that the EU has made.  In this situation where the contract being procured falls within the Schedule of the GPA, UK Economic Operators should be treated no less favourably than an Economic Operator established in the EU.  The contracts covered by GPA procurement rules (Schedule 1) are slightly more limited based on current GPA coverage. In particular: the rules do not cover below threshold procurements or defence procurements; the rules covering the utilities sector are more limited; concessions are excluded; and there are no express rules on modifying contracts.

If the UK is not an independent signatory to the WTO GPA on exit day, there will be no right of access for UK suppliers to EU Member State procurement competitions.

The EU’s position currently on public procurement procedures that have been launched (where a call for competition has been made) is that the relevant provisions of national law applicable at the moment of launching should continue to be carried out and that the non-discrimination principle should be complied with in regard to bidders from the UK.

What would be the impact of a no deal Brexit for non-UK businesses trading with the UK?

On 13 December 2018, the Cabinet Office laid a draft Statutory Instrument (The Public Procurement (Amendment etc.) (EU Exit) Regulations 2019), which will come into force on exit day.  The aim of this SI is for the procurement regulations (public; utilities; and concessions) to reflect the UK’s status as a third country at the same time as ensuring that they continue to facilitate a functioning UK internal market and comply with the requirements of the GPA, which the UK intends to join in its own right after exit.

Key amendments include:

  • the provision for contracting opportunities to be advertised in a new e-notification service, rather than in the Official Journal of the European Union (OJEU), removing the need for Contracting Authorities to have recourse to E-Certis, the EU’s online database for eligibility criteria and documentary evidence; and
  • giving the Minister for the Cabinet Office powers to disapply some of the international provisions that currently apply where a contracting authority has a right to refuse to award a contract to a bidder that does not comply with international social, environmental and labour laws.

The Defence and Security Public Contracts Regulations 2011 (DSPCR) are being amended by a separate SI (the Defence and Security Public Contracts Regulations (Amendment) (EU Exit) Regulations 2019).  The Ministry of Defence has produced the explanatory memorandum.  The SI inserts the text of Article 346 TFEU into Regulation 6 to ensure that the DSPCR can still be disapplied to the extent necessary to protect the UK’s essential security interests.  Other amendments to the DSPCR reflect those made to the other procurement regulations.

As Economic Operators established in the UK will have the same status as all other suppliers based in a third country with which the EU does not have any agreement providing for the opening of the EU procurement market, a number of other consequences for these Economic Operators flow, including potentially being prevented from bidding for defence and security contracts in certain Member States, or having tenders for utilities contracts rejected where the value of goods from third countries without reciprocal arrangements exceeds 50%.

For more detail, see here.

What should businesses be doing now to prepare for a no deal Brexit?

The UK’s Contracting Authorities will be preparing to use the new e-notification service rather than the OJEU.  We understand that the new service is currently being tested, but there is no further guidance on how suppliers will be able to register or what the format of the new forms on the system will be.  Businesses should continue to monitor the Crown Commercial website for more information on when the service will go live and how to access it.

Some existing e-notification providers will have automatic access to the new UK e-notification service, but not all.  Contracting authorities which use separate e-notification platforms instead of the European Tenders Electronic Daily (TED) are therefore advised to check to ensure that their notices continue to be properly advertised.

Suppliers wanting to access UK contracts in the public sector will need to use the new UK e-notification service instead of TED. However, these suppliers can continue to use the relevant domestic portals, such as MoD Defence Contracts Online, Contracts Finder, Sell2Wakes, eTendersNI, and Public Contracts Scotland.  Once the new e-notification system is live, suppliers should look to re-instigate any CPV code notifications which it had set up with TED to ensure that opportunities are not missed.

Businesses established outside of the UK who wish to continue to have the same access and remedy rights to UK public sector contracts should consider setting up a subsidiary in the UK.

Similarly, UK businesses who wish to continue to access the public sector contracting opportunities in other Member States and to contract to the EU institutions as they do now, should look to establish a presence in a Member State.

Dates for the diary

By summer 2019 The Cabinet Office’s new measures to make central government contracts a ‘force for good’ are expected to come into force.
1 September 2019     From 1 September 2019, all central government departments, their executive agencies and non-departmental public bodies must include new selection questions on approach to payment for any procurements above £5m per annum.