UK: UK Public Procurement Law Digest: Policies, Policies, Policies

Last Updated: 28 August 2013
Article by Alistair Maughan

The UK and EU procurement law landscape in 2013 has been notable for the relative lack of interesting and novel cases. But, to entertain us all, the UK Cabinet Office has proved that procurement policies are like buses: sometimes, they all just seem to come at once.

This issue of the UK Public Procurement Law Digest looks at 4 separate policy announcements that will affect the way in which bidders on public sector projects will be evaluated and how the interaction between contracting authorities and bidders will be managed.

WHAT ARE THESE POLICIES?

The Cabinet Office policies cover, firstly, three closely related areas where authorities need to assess and evaluate various aspects of bidding entities and, secondly, a "New Ways of Doing Business" initiative.

The new policies cover:

  • Bidder past performance;
  • Bidder financial risk; and
  • Promoting tax compliance.

The aim of all of these new developments is to try to bring more consistency and predictability to the way of working with the UK public sector.

The Cabinet Office's "New Ways of Doing Business" initiative includes a new model contract, proposed by the Cabinet Office as the future template for the majority of material public sector ICT procurements. The model contract sets out revised approaches to issues such as capped pricing, limitation of liability, ownership of intellectual property rights and payment upon termination.

POLICY ON BIDDER PAST PERFORMANCE

It has been a source of frustration in many parts of the UK government for some time that the public sector has been seemingly unable to take account of concerns about a bidder's past performance on a contract for one part of government when assessing a bid for new work to another part of government.

In the light of the perceived problems with many public sector ICT and outsourcing projects in the past, it's perhaps surprising that it has taken until now for the UK government to produce a centralised policy designed to take account of bidders' past performance when assessing the award of future government contracts. The Cabinet Office's procurement policy note is designed to address this issue.

The policy applies to the procurement by UK central government departments and agencies of goods and services with a value of £20 million or more in relation to ICT, facilities management or business process outsourcing. For such projects, contracting authorities will be required to take a consistent approach to the consideration of bidder past performance, and ensure that their tender documents include minimum standards for reliability based on bidders' past performance.

To give effect to this policy, bidders will be asked to provide specified information, including certificates of performance, about their past performance on central government contracts over the previous 3 years. Contracting authorities should then satisfy themselves that bidders' previous government contracts have been satisfactorily performed in accordance with their terms or, where there is evidence that this has not been the case, that the reasons for such failure will not recur if the bidder were to be awarded the new contract.

The type of evidence that will, in the future, be required for central government contracts includes a statement of the main goods sold or services provided by that bidder in the previous 3 years. This may be limited by relation to the types and categories of goods and services required under the contract now being awarded in order to obtain more focused evidence. Bidders will also be required to obtain certificates from those departments where the previous services were required. If a certificate can't be obtained, the certification may be provided by the supplier itself.

If a contracting authority remains unsure whether previous contracts have been satisfactorily performed after review of this evidence, the correct course of action is to exclude that bidder on the grounds that it has failed to meet the minimum standards of reliability.

Contracting authorities don't have to accept the evidence that a bidder has submitted. Any department may seek to verify information provided - for example, by asking other departments for input. There is a requirement, of course, to treat all bidders equally when considering whether to verify such data. Indeed, that principle underlies the policy generally. The Cabinet Office has reminded contracting authorities that there is a key requirement to observe the fundamental principles of equal treatment and non-discrimination, transparency and proportionality guaranteed by the Public Contracts Regulation.

The Cabinet Office has re-issued the standard government pre-qualification questionnaire to reflect the contents of this procurement policy note.

For many years, the supplier community has feared the possibility of an informal "blacklist" of bidders by central government departments. In reality that has not transpired. The system of procurement by the UK government has remained largely contract-by-contract or department-by-department. Individual departments have not taken steps to read-across to other parts of government and look at bidder performance elsewhere. This has exacerbated some of the criticism by the bodies charged with oversight for the UK procurement system, such as the National Audit Office and the Public Accounts Committee.

POLICY ON BIDDER FINANCIAL RISK

The policy on bidder past performance does not, however, extend to potential concerns about a bidder's financial situation, including, for example, whether it may have been taken over by a foreign entity.

Looking beyond the specifics of previous bidder contract performance, the Cabinet Office has also issued guidance on how contracting authorities should assess bidders' financial standing and financial risk. This policy is designed to assist authorities to mitigate financial risk through both financial and non-financial means.

In part, the need for this public policy note stems from the increased financial risk inherent in the economy as a result of the on-going recession. However, it's also worth remembering that it remains a key target of the UK government to encourage participation in the procurement process by small and medium-size enterprises (SMEs). In August 2103, the government set a target that 50% of new ICT spend by central government should go to SMEs. While a laudable aim, by definition SMEs have fewer resources than larger providers and may be more susceptible to financial instability. It's likely that the need for risk mitigation in relation to SMEs will have been a driver behind the new policy.

The policy note provides advice for contracting authorities on the assessment of bidders' financial standing during a procurement exercise. Such financial assessments are intended to assess the risk to the public sector which would result if a potential bidder were to go out of business during the life of a contract or have inadequate financial resources to enable it to perform the contract. Also, a proper financial assessment provides a basis for elimination from a procurement in justifiable circumstances where a potential provider is in a present financial state that might pose an unacceptable risk to the public sector.

A number of general principles apply:

(a) Public bodies should undertake a financial assessment of bidders in a manner which is proportionate, flexible and not overly risk-averse. The essential goal is to ensure that value is delivered to the taxpayer and that public bodies comply with the relevant procurement laws.

(b) All potential providers should be treated fairly and with equal due diligence. There is no basis for discriminating against SMEs - or, indeed, public service mutuals, simply because they do not fit into standard "boxes" in a financial structure.

(c) The policy note confirms that a bidder's financial standing is only to be considered as part of the overall bidder selection criteria. It should not be taken as proxy for a bidder's ability or inability to deliver its solution.

(d) In general, the Cabinet Office considers that authorities should ask for accounts for the past 2 years of trading or, if those are not available, other information that is sufficient for assessment purposes. If a potential provider (e.g., an SME or public service mutual) has only been recently established and doesn't have 2 years of accounts, authorities should exercise flexibility.

(e) The Cabinet Office stresses that credit rating reports can be useful to provide a view of bidders' financial standing. But these are not appropriate as the sole assessment tool and are not a substitute for the examination of accounts and other documentation provided by bidders.

(f) The Cabinet Office recommends that public bodies should not impose arbitrary minimum requirements on contract limits (i.e., size of contracts that can "safely" be awarded to particular bidders) set by turnover because these might have the effect of barring SMEs or new businesses from bidding.

(g) The Cabinet Office suggests that contracting authorities ought to take a risk-based approach to the need for business insurance. There is no minimum level of insurance coverage required by law. Authorities should ensure the required cover is proportionate and reflects the nature of the work to be done and the risk involved.

(h) The Cabinet Office addresses the need for a deed of guarantee or other performance bond - but fails to provide helpful guidance as to when such extra contract protections may be necessary.

(i) Finally, the Cabinet Office suggests that public bodies should look at other methods to mitigate risk without recourse to financial instruments - e.g., contract management and monitoring procedures, step-in rights in contracts, or escrow arrangements where appropriate to protect particularly important software and technology assets.

POLICY ON PROMOTING TAX COMPLIANCE

The third of the Cabinet Office's recent policy notes addresses the issues of how authorities ought to use procurement to promote good tax compliance by providers to government.

This policy note coincides with a key initiative by the current UK government to promote tax compliance and create a disincentive for companies that bid for government contracts to use aggressive tax avoidance techniques.

The new policy applies to all bidders on central government contracts with a value of £5 million or more. The Cabinet Office will require authorities to ask relevant questions at the pre-bid stage that require bidders to state whether their tax affairs have given rise to a criminal conviction for tax-related offences or to a penalty for civil fraud or evasion, or whether any tax returns submitted after 1 October 2012 have been found to be incorrect as a result of HMRC challenge.

If a supplier has to answer "yes" to any of these questions, it must provide further detail about any incident of non-compliance and the penalty applied. It may also provide details of any mitigation undertaken.

Where a supplier declares that it has had an occasion of non-compliance, the contacting authority can decide whether to exclude that supplier from the procurement process. The Cabinet Office intends to issue further guidance as to how to assess suppliers' responses to these questions and HMRC will offer a point of contact for support for central government departments on issues arising.

Interestingly, this policy note does not go as far as many thought it might. Some government departments have previously included appropriate tax compliance as a contract requirement and reserved for themselves a right to terminate a contract in the event that a bidder's tax behaviour is found to be unlawful or if a bidder engages in aggressive tax-avoidance behaviour that brings the government department into disrepute. The point is to ensure that government departments are not found to be entering into contracts with companies which practice aggressive tax avoidance techniques.

"NEW WAYS OF DOING BUSINESS" INITIATIVE

The Cabinet Office's "New Ways of Doing Business" initiative is intended to be the first of a number of projects aimed at standardising the way that the UK government does business with its strategic suppliers. It's a key goal of the Cabinet Office to introduce more standardisation across the range of government departments and the major contracts that are put in place with suppliers. This is all part of an over-arching commercial agenda from the Cabinet Office designed to increase value for money and, it hopes, make it easier for suppliers to know what to expect from government.

There will be three main changes introduced as a result of the "New Ways of Doing Business" initiative. Firstly, a new set of standard contract terms for large-scale service provision will be put in place. Secondly, the Cabinet Office will apply a supplier management approach that maximises the value received from these contracts. Thirdly, there will be a new performance management and reporting regime to demonstrate whether value is being achieved.

So far, the only change that has become apparent is the new model agreement which has been prepared by the Cabinet Office along with the Government Legal Service. The aim is to create a contract which is user-friendly - or at least more user-friendly than the previous model ICT terms issued by the Office of Government Commerce. In putting the new model in place, the Cabinet Office has aimed to provide further precedent drafting for key schedules and consolidate clauses which require commercial input into specific annexes for ease of completion. The Cabinet Office also claims to have reflected issues that have arisen in the past and addressed new commercial structures.

There are some helpful developments in the new model. These include new anti-bribery provisions inserted following the introduction of the Bribery Act 2010; the introduction of insolvency events that deal with alternative business structures; and equality provisions updated following the introduction of the Equality Act 2010.

The Cabinet Office has also tackled the various issues that were previously of concern. So, for example:

  • Supply chain protection: the authority may "name and shame" suppliers that do not pay their subcontractors within 30 days;
  • Financial distress: the Cabinet Office has opted for a short-form version of the financial distress schedule which would generally be more acceptable to the bidding community;
  • Insurance: the Cabinet Office has amended the insurance provisions to recognise that, in most cases, bidders will seek to use their own corporate policies and market practice rather than put in place project-specific insurance;
  • Due diligence: the Cabinet Office recognises that there may now be a need for post-contract validation of certain commercial assumptions and has provided a structure to allow that to happen; and
  • Promoting tax compliance: in pursuance of the procurement policy note already described, the model terms include a warranty and duty to note for the authority any occasion of tax non-compliance.

The model terms also include an amended position on intellectual property rights in contracts. There is a new standard position on exclusions and limitations of liability, and open book and transparency will be mandatory features of all contracts.

The Cabinet Office also provides a new payment mechanism - guaranteed maximum price with target cost pricing - which it believes will incentivise suppliers to stay within the budget and incentivise contracting authorities to keep suppliers' costs down.

There is also a revised Key Performance Indicator and subsidiary performance indicator regime which has been rationalised to address performance failures and a new termination regime, including a new way of working out compensation upon exercise of authority termination for convenience.

Unfortunately, the new model terms don't appear to address some of the issues that reduced the effectiveness of previous model agreements. For example, the Cabinet Office has not explained how it plans to implement a system to enforce the use of the model agreement. Regardless of the content, if the agreement were to be mandatory for all government contracting and bidders were dealing with basically the same agreement each time they contracted with government bodies, this could speed up whole contracting process. Furthermore, in practice the Cabinet Office needs to eliminate the tendency for contracting authorities to cherry pick from the model terms, i.e., adopt provisions that they like, but insert their own preferences on issues where they feel that the model is more supplier-favourable than they would like. The Cabinet Office has taken some steps to achieve a balance in the model terms, and contracting authorities ought not to be able to adopt unilaterally a more severe position than the model terms. Many of the contract structures adopted in the model terms already create a risk profile for bidders that either leads to higher-than-necessary risk premiums - or to bidders simply choosing not to bid - and any tampering with the overall risk balance will undermine the Cabinet Office's efforts so far.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alistair Maughan
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think youve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.coms content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltds services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with no disclosure in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a users hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friends name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a users personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that users personal data provided to us. This can usually be done at the Your Profile page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.