Regulatory Outlook: Regulated Procurement

Current issues: July 2019

Damages claim can continue even after procurement abandoned

It is usual for contracting authorities and utilities to abandon a procurement as a means of closing down a challenge from an unsuccessful bidder. Usually, the parties are able to discontinue the claim by consent shortly after the abandonment.

In Amey Highways Ltd v West Sussex County Council, the Court held that the Council’s decision to abandon the procurement after receiving a challenge did not extinguish the claimant’s cause of action, and that the claimant was entitled to continue to pursue its claim for damages against the Council if it chose to do so.

The difference between the winning bidder and Amey’s scores was 0.03%. The Court held that, although the Council was entitled to decide to abandon the procurement and had done so lawfully, Amey had established that it had incurred loss and damage as a result of the Council’s actions before it abandoned the procurement. This means that the abandonment had no impact on Amey’s claim, despite no contract ever being awarded under the procurement due to the abandonment.

This case could signal an important new development in the handling of procurement challenges, particularly in relation to decisions to abandon procurements as a way of shutting down legal challenges.

Incumbent advantage is not necessarily an unfair advantage

In Proof IT SIA v EIGE, the CJEU held that, whilst an incumbent bidder undoubtedly benefits from an advantage by having performed the previous contract, that advantage is not necessarily unfair.

The claimant alleged that, in evaluating bids against the award criteria, the contracting authority had allowed the incumbent to benefit from the knowledge it acquired in previously performing a similar contract for the contracting authority.

The Court found that the contracting authority had not breached the principle of equal treatment and was not under an obligation to take steps to remove the incumbent’s advantage. The Court noted that it is inevitable that an incumbent bidder will enjoy an inherent advantage in a procurement procedure, but the principle of equal treatment does not generally prevent a contracting authority, nor an incumbent bidder, from using the market advantages enjoyed by one firm above another.

The case provides helpful clarity on the extent to which public procurement law requires the advantages enjoyed by an incumbent bidder to be levelled against other bidders.

Guide for voluntary, community and social enterprise sector on bidding for public contracts

The Office for Civil Society (part of the Department for Digital, Culture, Media and Sport) has produced a user-friendly guide to bidding for public contracts for organisations in the voluntary, community, and social enterprise sector.

The guide provides a basic overview of how to find and bid for public contracts, specifically targeted at VCSE bidders, including:

  • Where to find contract advertisements.
  • Different types of early engagement events and how to search for them.
  • How to showcase social value in a bid.

Recent case law on mergers during tenders

There have been two recent EU decisions in long-running cases dealing with mergers between bidders during or soon after a procurement.

In Telecoms Italia SpA v Ministero dello Sviluppo, two bidders pre-qualified separately for a procurement and, having merged during the live procurement, sought permission from the contracting authority to continue bidding as a newly formed single entity.

The Advocate General gave an opinion that, whilst it is usually the case that a bidder must pre-qualify in order to submit a tender, it is permissible to “adjust” the identity of bidders in certain circumstances. As both bidders had pre-qualified, it should be permissible for them to submit a tender as a newly-merged entity, provided that the bidders did not coordinate to benefit from unfair advantages compared to other bidders. There was no suggestion that this was the case.

In Sopra Steria Group SA v European Parliament, the General Court held that a contracting authority was entitled to reject two bidders who, having each won a lot as part of their respective consortia, failed to declare their merger (which completed after the procurement had concluded).

The tender had required bidders to declare potential conflicts, such as those arising from mergers. The Court held that the bidders should have declared the merger, and that the authority was entitled to reject both bidders on the basis that the resulting group structure would give rise to conflicts of interest.

In Focus | Regulatory powers and trends

Who are the regulators?

There is no regulator of public procurement regulations in the UK.

Compliance with public procurement law is enforced through the High Court by suppliers bringing legal action against contracting authorities / utilities who breach the rules. The Court has the power to set aside contracts, award damages for loss of profits and wasted bid costs, and fine public bodies.

Complaints may also be made directly to the European Commission.

In the health sector, NHS Improvement (formerly known as Monitor) has the power to investigate and issue directions in relation to contracts for NHS health care services awarded by NHS commissioners under the NHS (Procurement, Patient Choice and Competition) Regulations. NHS Improvement has the power to declare contracts ineffective, but has never exercised this power to date. It does not have the power to order NHS commissioners to pay monetary damages.

The Cabinet Office’s Public Procurement Review Service (formerly known as the Mystery Shopper service) is able to investigate concerns and make recommendations to contracting authorities regarding best practice, but does not have enforcement powers.

Do they have powers to compel businesses to hand over documents?

The Technology and Construction Court (TCC) hears the majority of public procurement challenges, and has issued guidance recommending that contracting authorities hand over key documents relating to the alleged breach of the regulations as early as possible in any dispute.

Even if a contracting authority refuses, at a certain stage in the legal proceedings, both parties will be required to disclose key documents to each other.
In addition, any documents held by a public body can be requested under the Freedom of Information Act 2000 (although certain information will be exempt from disclosure for reasons relating to commercial interests or ongoing legal proceedings).

NHS Improvement has the power to require an NHS commissioner to provide it with information for its investigation.

Do they conduct dawn raids?

No. As there is no regulator, there are no dawn raids in relation to regulated procurement.

Are they able to bring criminal prosecutions (and do they do so)?

No.

Do they bring prosecutions against individuals?

No.

Is there a self-reporting / leniency regime?

Public procurement law provides that contracting authorities may not award public contracts to suppliers that have committed certain offences or demonstrated misconduct in previous contracts. Suppliers that meet any of the exclusion grounds (listed within the UK legislation) can avoid exclusion by providing evidence of “self-cleaning”. The evidence must demonstrate that the supplier has taken “appropriate measures” (as set out in the legislation) to demonstrate reliability despite the existence of an exclusion ground.

Appropriate measures include: having paid compensation in relation to damage arising out of misconduct; having collaborated with investigating authorities; and having implementing concrete technical, organisational and personnel measures to prevent further misconduct.

If a supplier can demonstrate “sufficient” self-cleaning (as determined by the authority), the supplier cannot be excluded.

Are there any plans to introduce new powers (or use existing powers differently)?

For several years, public procurement lawyers have discussed the arguments for and against:

  • introducing an independent UK procurement regulator, with powers of enforcement against contracting authorities; and/or
  • introducing a public procurement tribunal that would deal with legal challenges quicker and more cost effectively than the High Court (similar to, for example, Iceland’s Public Procurement Complaints Commission, which deals with and resolves complaints in around three months).

There are currently no plans in the pipeline to introduce either of these new regimes. It may be that Brexit presents an opportunity for the UK government to overhaul the procurement regime in the UK, although there is some scepticism as to whether this would be deemed a priority for the government in the wake of Brexit.

Are there any areas of new technology that are a particular focus of regulatory attention?

Procurement tools that use artificial intelligence (AI) are being developed across the EU to increase the efficiency of procurement procedures. At present, such tools are predominantly being developed for and used by the private sector for unregulated procurements. The use of such tools in the public sector is likely to follow once they are more established. Market analysts suggest that artificial intelligence could introduce the following improvements in procurement:

  • Better supply management, enabling authorities to anticipate supply chain requirements (and the need for a competitive procurement) further in advance and with greater accuracy.
  • More sophisticated spend forecasting and predictions based on a broader analysis of market intelligence, allowing for more accurate contract value estimations.
  • Better price benchmarking against comparative contracts, enabling contracting authorities to have a better understanding of what price they should be paying.
  • More sophisticated evaluation when comparing different contract models. At present, evaluators find it very difficult to compare variant bids, to the extent that most tenders require bidders to bid against the same set of criteria and pricing structure. An AI-based evaluation tool may be capable of identifying the most economically advantageous tender from a variety of different contract models, increasing the potential for innovative bids.
    More innovative and complex procurement procedures (i.e. procedures that would be too resource-intensive for a contracting authority to run without the aid of artificial intelligence).
  • More comprehensive risk assessment of potential suppliers at selection stage, based on deep market intelligence, leading to more reliable suppliers. An artificial intelligence tool with access to information from across the public sector could provide early warnings of a potential Carillion-style collapse, or could, for example, allow for the exclusion of a supplier linked to poor production processes in a developing country.

How has the digital transformation affected the regulators’ own behaviours?

Whilst public procurement in the UK and EU has not yet evolved significant new digital practices that affect the way in which countries procure contracts, the digital transformation could lead to new behaviours.

For example, in South Korea, public entities procure contracts through a nationwide web-based procurement system (KONEPS). Data from the KONEPS is fed into a national Bid Rigging Indicator Analysis System (BRIAS) to identify potential collusion. BRIAS collects information from KONEPS on a daily basis and analyses the bidding price, the number of participants and the competition method, and produces a potential bid-rigging score. If the score is above a certain threshold, this suggests a need to collect more information and potentially open an investigation into suspected collusion. Whilst we have not seen any UK or EU examples of such wide-reaching practices in public procurement, the digital transformation opens up such opportunities.

Dates for the diary

1 September 2019

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

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

18 April 2020

On 18 April 2019, the Public Contracts Regulations 2015 was amended to include new requirements relating to electronic invoicing, as set out in the Public Procurement (Electronic Invoices etc.) Regulations 2019. The Utilities Contracts Regulations 2016 and the Concessions Contracts Regulations 2016 will be amended to include comparable provisions on 18 April 2020.

The new provisions require contracting authorities and (from 18 April 2020) utilities to accept and process any undisputed supplier invoices that comply with the technical e-invoicing standards developed under the overarching EU Directive. Contractual terms to this effect will be implied into all regulated contracts after the relevant implementation date for each regulation.

The Cabinet Office’s Procurement Policy Note includes guidance and model contractual terms.

2 September 2019

The Cabinet Office is due to publish the results of its consultation on how government should take account of social value in the award of social contracts. The consultation sought comments on a proposed new evaluation model for social value, including proposed questions, possible responses and proposed evaluation metrics.

The intention is for the new model to apply to procurements run by central government departments, executive agencies and non-departmental public bodies.

Read the full Regulatory Outlook here >


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