Further to our recent briefing Should I Stay or Should I go? (Revisited) where we commented on the maintenance of an automatic suspension in the case of Edenred (UK Group) Ltd v Her Majesty’s Treasury, HMRC and NSI [2014] EWHC 3555 (QB), an expedited trial has now taken place. 

The case concerned the Government’s new “Tax Free Childcare” (“TFC”) system for working parents. TFC is due to replace, this year, the current “Employer Supported Childcare” (“ESC”). Edenred is one of a number of private commercial operators who administer the ESC scheme. TFC was to be administrated solely by National Savings and Investments (“NSI”), all of whose operations are contracted out to Atos - a private sector provider.

Edenred challenged the proposed TFC arrangements arguing that if HMRC and NSI conclude a memorandum of understanding and the NSI/Atos contract is varied in order to provide TFC, then that will involve:

  1. the conclusion of a public services contract under the Regulations without any proper tender procedure (a direct award to a public sector body); and
  2. a material variation of a public services contract between NSI and Atos without a tender procedure. If this argument is correct then the arrangement would be an ‘illegal direct award’.

On the direct award point, the Judge ruled that this is not a contract and so not a public contract. The Judge looked at the arrangements and concluded that this was no more than an MoU for internal working arrangements between Crown bodies and it is not a contract between different parties - it is just a co-operation agreement between departments. As there was no contract, there was no public contract that needed to be tendered and consequently no direct award. The Judge commented:

“In substance and in reality what has happened here is that the Government has decided to deliver TFC itself, internally, rather than through an external provider.”

On material variation, the Judge considered the key case in this area -Pressetext. The Judge concluded that even though the new work required an amendment agreement to the Atos outsource contract, her view was that the new services were the same in type as services advertised in the original contract award to Atos. In any event, the Judge thought the changes were not material. The Judge commented that had the new services been expressly referred to in the original bid, it is unlikely that other bidders who could have bid but did not, would have suddenly become interested and no other party can have suffered any detriment.

The case is therefore likely to help shape the boundaries of material variation arguments in the future. The new public procurement regulations due to come into force this year will clarify the boundaries of material variation and will provide a number of situations where a contract variation is not considered to be material. However, it is likely that this case will remain relevant to the interpretation after those changes.

A link to the case can be found here.