November 2011

The EU has issued some helpful (if lengthy) guidance called "Buying Green" - a handbook explaining how to introduce environmental factors into the procurement process.

The new handbook deals with the issue which has been the subject of some debate among procurement professionals - is it appropriate to consider green credentials at PQQ stage? The procurement regulations are quite clear on what can be taken into account at PQQ stage (see Regulations 23, 24 and 25). There is a brief reference to "environmental management measures" at Regulation 25(2)(h) but consideration of this is limited to "where it is necessary for the performance of the contract".

There is no clear basis in the Regulations on which you could ask, for example, "do you have an environmental impact policy in place?" and score that as part of the PQQ. However, the Buying Green paper points out, at pages 34 and 35, a number of areas where green credentials could be legitimately built in to standard PQQ questions, for example by asking about past experience of contracts with similar environmental requirements.

Procurement professionals in universities were excited to read the following in a recent Department of Business Innovation and Skills White Paper ("Students at the heart of the system") presented in June by David Willetts, Minister for Universities and Science:
"Changes to the way institutions are funded may also reduce regulatory requirements. For example, because in future most funding will follow students in the forms of loans and direct grant funding from Government will decrease, fewer institutions may be subject to EU Procurement Rules."

So what is the legal position? Are universities now exempt from the procurement rules?

In broad terms, a university will be a "contracting authority" (ie a public body subject to the procurement rules) if in excess of 50% of its funding is public funding. Public funding for these purposes includes sums paid by other contracting authorities in respect of tuition fees.

The relevant change here is that funding in respect of tuition which would have previously been paid to a university by the Higher Education Funding Council for England (HEFCE), will now be paid to the university by the Student Loans Company (SLC). As far as the university is concerned, payments from the SLC are payments for the provision of tuition to a student on a qualifying education programme. Therefore, in terms of the university as a recipient of the payments, there is no material difference in terms of the purpose and/or use of the payments, from the position where the sums were received from HEFCE.

The SLC will seek repayment from students via the tax system on the basis of a contract between the relevant students and the SLC. The university is not a party to the contract, and the money paid to the university is in no way contingent on, or impacted by, whether or not any sums are repaid by students. There is no consideration given by the university to the SLC in respect of the sums received.

The SLC is a non-departmental public body that is wholly owned by government and is therefore itself a contracting authority.

Given the above understanding of the position and the operation of the SLC, our view is that it is clear that sums received from the SLC are public funding for the purposes of the procurement rules - they are sums paid by a contracting authority to universities in respect of tuition fees.

On this basis, our current view is that an increase in the percentage of funding received by a university from the SLC and a corresponding decrease in the percentage from HEFCE will not have any impact on whether the university is subject to the public procurement rules. Those university procurement officers who were hoping to escape from the procurement rules are, for the moment, going to be disappointed.

There are two important points to note:
- Firstly, in the event that the Student Loans Company is privatised (and the government indicates in the White Paper that the sale of its loan book remains a possibility), this may have an impact on the above analysis - the precise impact would depend on what is privatised, and the structure of any privatised loans provider.
- Secondly, if the increase in tuition fees leads to an increase in students paying fees themselves direct to the university (ie students funding their course privately) then that will be relevant for a university in assessing the proportion of its income that comes from public funding. Public funding does not include tuition fees paid direct by students to a university.

Those procurement practitioners who have had to consider whether a contract is exempt from competition under the Regulations on the basis that it is an "in house" contract, will know that the rules in this area have been - at best - somewhat opaque.

The Commission has come to the rescue with a working paper on "public-public cooperation". The paper is intended as a summary of the existing position rather than to create new law, but is a surprisingly readable summary of this complex area, and gives a clear statement of the principles.

For authorities needing to consider whether a contract might be "Teckal exempt" the paper is a good place to start.

Those attending the annual White Paper Conference on procurement law last week were treated to an insight from leading commentators into the likely future direction of procurement law.

Predictions of future developments included:
- an increased focus on value for money and less of a technical and mechanistic approach to interpreting the rules;
- an attempt to breath new life into the competitive dialogue procedure, with reduced (if any) restrictions on its use, and scope for post-tender negotiation;
- the (welcome?) return of the negotiated procedure to mainstream use;
- further increases in the use of electronic procurement, including availability of all tender and contract documentation online earlier in the procurement process; and
- improved training and guidance for those involved in procurement.

Speakers also highlighted the need for clarity about how the government's extensive plans for mutuals would be impacted by the procurement regime. Watch this space!

The White Paper speakers also had some interesting things to say about developments on procurement challenges. Among the views expressed:
- the American Cyanamid test which has been adopted by the courts for dealing with automatic suspension cases is natural to English courts but imposes a real barrier to claimants;
- there may be insufficient weight given to the public interest in getting procurements right as opposed to procuring the service;
- ineffectiveness as a remedy was counter-intuitive to English courts and unlikely to be very…well…effective; and
- there was little prospect of the EU legislation on remedies being amended in the near future given how recently the Remedies Directive has been introduced.

In 2010 Mrs Hossack, the sole principal of a firm of solicitors which has its only office in Northamptonshire submitted a tender to the Legal Services Commission (“LSC”) for a contract to provide publicly funded services in social welfare law from 14 October 2010. The tendering process divided England & Wales into 125 geographical areas and Hossacks tendered for each. The tender documents required, amongst other things, that the prospective service provider should have, at least, a part-time office in each area where services were to be provided.

In making its bids, Hossacks submitted a pro forma containing identical information. That pro forma referred in each case to Wiltshire and contained information specific to that area. In particular it stated (it turned out wrongly) that Hossacks would open a part-time office in Wiltshire.

Accordingly, when it came to submitting a bid for Northamptonshire, where its sole office was situated, the erroneous information that the firm intended to have a part time office there was given.

In July 2011 the LSC rejected all of Hossack’s bids except that for Wiltshire on the grounds that all other tender forms submitted did not relate to the applicable invitations to tender.
So far, not particularly unusual. What was unusual was that rather than bringing a claim under the Public Contract Regulations (“the Regulations”), Hossacks sought leave to bring judicial review proceedings to challenge the LSC’s decision.

The usual counter to such proceedings is that the Regulations provide an alternative remedy in these cases and generally judicial review is only allowed where no other remedy is available.

This was probably accepted when the application for leave to bring judicial review proceedings was rejected on paper. On appeal, this position was certainly accepted by the judge who even indicated a willingness to transfer the claim to the Chancery Division so that it could proceed under the Regulations.

Hossacks maintained however that the Regulations did not give it an alternative remedy and this argument was accepted by the Court of Appeal handing down judgment on 8 July 2011. It allowed an appeal to bring judicial review proceedings in respect of the LSC’s rejection of the tender for the Northampton area.

The Court of Appeal considered whether judicial review was rendered inappropriate by the existence of an alternative statutory remedy in the form of an application under the Regulations and found that it was not. If Hossacks was to succeed in proceedings for judicial review the LSC’s rejection of its tender could be quashed and the LSC asked to reconsider with the possibility that a contract may be awarded at the end of it. It was not clear that the same result could be achieved under the Regulation where there was a risk that the only remedy was damages. Hossacks wanted the contract, not damages.

The judicial review was heard on 27 October 2011 and was rejected for reasons that are interesting but not the main focus of this blog post. What has been interesting is the willingness of the court to accept the argument that the Regulations do not always provide an adequate alternative remedy and that judicial review may be appropriate where the Claimant is seeking, effectively, a second chance at the tender process.

As the case law develops on the Regulations and the courts have so far seemed reluctant to apply the ineffectiveness remedy perhaps judicial review will be used as an option instead to secure a second bite of the cherry.