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New public procurement legislation is due to come into force on both sides of the border. In Scotland, new, consolidated Regulations will apply from 1 May 2012, bringing time limits for challenges into line with the position in the rest of the UK. In England and Wales, there is new legislation designed to ensure that authorities maximise the social value to be obtained from contracts. The past few months have also seen a number of cases from the UK and European Courts, including a helpful ruling on development contracts and helpful guidance from the European Courts on abnormally low bids.

New Scottish Procurement Regulations

On 1 May 2012 the Public Contracts (Scotland) Regulations 2012 and the Utilities Contracts (Scotland) Regulations 2012 will come into force. The biggest change will be a reduction to the time limits within which bidders can challenge procurement decisions. The limit will drop from three months to thirty days. The thirty day time limit may be extended by a court when there are good reasons to do so. Although similar provisions have been in force in England and Wales since the beginning of October 2011, there has not yet been any guidance on what the courts will consider a good reason to extend the time limit.

The new Regulations have also been heralded as an addition to the toolbox in the fight against organised crime. Offences under the Bribery Act 2010 and the Criminal Justice and Licensing (Scotland) Act 2010 are now included as reasons for which offending companies must be excluded from public contracts.

We will be holding seminars in Glasgow and Edinburgh which will take place just a few days before the new rules take effect and will introduce the new Regulations. The seminars will explain the new developments and the transitional arrangements between the old and new rules.

For further information and to register for the seminar, click here.

Click here to read the Public Contracts (Scotland) Regulations 2012.

Click here to read the Utilities Contracts (Scotland) Regulations 2012.

Click here to view the minor amendments made by the Public Contracts and Utilities Contracts (Scotland) Amendment Regulations 2012.

Abnormally low bids must be investigated

Abnormally low bids have become an important issue in public procurement, particularly during the past few years of economic turmoil. Contracting authorities are sometimes unsure how to treat such bids and other tenderers often feel aggrieved when low bids prevail.

There has been some doubt as to whether a contracting authority is obliged to investigate a suspected abnormally low bid. An important ruling of the European Court, answering questions referred by a Slovakian court, has clarified this point. The Court has emphasised that contracting authorities must investigate abnormally low bids using the procedures set out in the procurement rules and cannot opt out of doing so.

Although this issue has now apparently been settled, contracting authorities still have to grapple with identifying such bids and assessing the explanations offered. The new judgment also bolsters the position of other bidders, who may wish to challenge a tender process, should contracting authorities ignore the requirement to investigate.

Click here to read SAG ELV Slovensko.

Adding social value

The Public Services (Social Value) Act 2012 received Royal Assent on 8 March 2012, but has not yet come into force. The Act applies to England and Wales, but not to the devolved administration in Wales or to any contracting authority whose functions are wholly or mainly Welsh devolved functions.

The Act applies to contracting authorities who are procuring contracts or entering into framework agreements under the Public Contracts Regulations 2006. It provides that contracting authorities must consider how what they propose to procure might improve the economic, social and environmental well-being of the area in which it operates and how, in conducting the process of procurement, it might act to secure that improvement.

For some authorities this legislation will merely confirm their existing procurement best practice; for others some adjustment may be needed. Once a procurement exercise is underway, the Public Contracts Regulations and EU case law govern the extent to which relevant economic, social and environmental considerations may be included.

Click here to read the Public Services (Social Value) Act 2012.

Cabinet Office makes changes to support small businesses

The Cabinet Office has published two Procurement Policy Notes so far in 2012, both intended to support its aspiration that 25% of government contracts by value should be awarded to small and medium sized businesses. PPNs must be followed by UK central government departments, and other contracting authorities are encouraged to follow this lead, unless devolved guidance such as that issued by the Scottish Government qualifies or supersedes the UK PPN.

The first PPN deals with the use of Pre-qualification Questionnaires. For over threshold procurements, a revised standard PQQ has been published, and the guidance highlights that selection criteria should be related and proportionate to the subject matter of the contract. For under threshold procurements, the guidance is intended to eliminate PQQs and other pre-tender selection processes altogether. Increased use of open procedures should give increased opportunity for SMEs to submit tenders, but they may expend more resources in completing full invitations to tender for contracts they stand little chance of winning. Similarly, authorities lose the flexibility of a staged process and may need to devote more resources to tender evaluation.

The second policy note deals with ICT procurement. It aims to reduce dependence on single suppliers, increase competition and innovation, and enable contracts to be used by more than one government department. ICT contracts will be limited in value to less than £100 million unless there is a strong case that doing so limits overall cost to the tax payer. The approach outlined in the note involves a transfer of "integration risk" from the private to the public sector. Previous projects have acquired whole systems (including hardware, software, networking and data storage) in order that a single supplier takes responsibility for the operation of the system. The Government's new approach will involve procurement of the components of a system in separate contracts, and cross-government use of existing contracts, making projects cheaper but with the risk that components may not work together. 

Click here to read the latest Cabinet Office Procurement Policy Notes.

When do the procurement rules apply to land sales?

The extent to which the procurement rules apply to development agreements featured in our August 2010 Update. A recent judgment from the High Court in London, Midlands Co-Operative Society Limited, R(on the application of) v Tesco Stores Limited, sheds further light on when a development agreement will be caught by the procurement rules.

In this case, Birmingham City Council ("the Council") had earmarked a site for development. The site comprised of parcels of land in multiple ownership, including a community centre owned by the Council. The Council required the relocation of the community centre as part of any development proposal. Both Tesco and the Midlands Co-Operative Society ("the Co-Op") applied for and received outline planning permission for the site. Given this interest, the Council decided to run a competitive process between the two parties to select a development partner for the site. The Council agreed in principle to sell its interest in the community facility to the successful party and the tender documents issued to Tesco and the Co-Op obliged the developer to construct a replacement community centre.

Both Tesco and the Co-Op submitted tenders and Tesco was selected as the preferred partner. As the negotiations with Tesco progressed, the Co-Op raised objections and alleged that the Council had not conducted the tender in accordance with the procurement rules. The Council subsequently abandoned the tender process.

The Council launched a second tender process, this time inviting Tesco and the Co-Op to bid for the Council's interests in the community centre as a pure land sale with no development obligations. However, as part of the tender submissions, the developers were required to submit a development appraisal. The Co-Op again argued that the Council had not conducted the tender in accordance with the procurement rules and refused to submit a bid. The Council subsequently abandoned the tender process on the ground that it had not received a bid that was capable of approval.

Evidently believing in the maxim, third time lucky, the Council launched a new tender process. This time the Council advertised the sale of the site of the community centre by informal tender. The Co-Op again argued that the contract was not a straight-forward land deal and alleged that the tender was a sham. Tesco submitted the only bid and was successful. The Council granted Tesco planning permission for the site, which included obligations relating to the redevelopment of the community centre. The Council and Tesco exchanged contracts in relation to the sale of the site.

The Co-Op subsequently sought judicial review of the Council's decision to sell the site to Tesco. One ground of challenge was that the Council had breached the procurement rules as the sale of the site to Tesco formed part of a public works contract that had not been tendered in accordance with the Public Contracts Regulations 2006. The High Court considered the guidance provided by the European Court of Justice in the Helmut Müller case and found that for there to be a public works contract, there must be a commitment by the developer that is legally enforceable by the contracting authority, to perform the relevant works. The Court ruled in the circumstances of the present case, the Council did not hold a legally enforceable obligation over Tesco to construct the replacement community centre. Whilst the planning conditions imposed obligations on Tesco to be responsible for all works of fitting out and relocation costs of the replacement community centre if it developed the site, there was no obligation on Tesco to develop. Looking at the arrangements as a whole, there was no obligation on Tesco to perform works and therefore no public works contract. Accordingly, the procurement rules did not apply.

Whilst the case does not alter the legal position, it is nevertheless important because it shows how the domestic courts are likely to apply the Helmut Müller judgment going forward. An important issue which the judge flagged is that contracting authorities cannot get round the rules by hiving off the obligation to perform works into a separate agreement - the arrangement will be looked at in the round. Nevertheless, the judgment illustrates that there is scope to formulate strategies to develop sites out with the scope of the procurement rules.

Clarity of selection criteria

The High Court in Northern Ireland has recently emphasised in Clinton (t/a Oriel Training Services) v Department for Employment & Learning the need for contracting authorities to ensure that tender requirements, in particular selection and evaluation criteria, are clearly defined and presented such that all reasonably well informed and diligent tenderers would be able to interpret the criteria in the same way. In this case, the Department for Employment and Learning was found to have committed an error of law by applying selection criterion which give rise to an unacceptable degree of doubt and uncertainty. The effect of the criteria was that all tenderers were not able to determine the requirements of the tender.

The Court found that the selection requirement expressed in the tender document was not susceptible to uniform interpretation by tenderers and, importantly, was not uniformly interpreted and applied by the Department when assessing tenders. This judgment reiterates the importance of clarity in tender documents, particularly regarding selection and award criteria.

The Court also found the Department had breached the requirements of equal treatment by failing to request Clinton to provide information which was missing from its tender while using clarifications to allow other tenderers to supplement insufficient information in their tenders. This judgment shows that contracting authorities should tread carefully when dealing with clarifications, particularly with a view to ensuring equal treatment.

Contact us

If you think your business or organisation may be affected by any of the above, or if you have any other questions, please contact:

Michael Dean
Partner
0141 271 5730
michael.dean@mms.co.uk

Catriona Munro
Partner
0141 271 5696
catriona.munro@mms.co.uk

David McGowan
Associate
0141 271 5737
david.mcgowan@mms.co.uk

This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.