STOP PRESS - this morning the Supreme Court handed down their judgment in the Edenred case.
This was a case involving National Savings and Investments (NS&I) which is a non-ministerial Government department. NS&I offers retail savings and investments to UK customers but also provides support functions to other public bodies, the so-called "business to business services" or "B2B services". NS&I entered into a contract with Atos in 2013 (following an EU competitive process) to purchase support services including transaction management, printing, accounting, IT and customer services. It was envisaged in the original tender documents and contract that the Atos contract could be extended to support new B2B services provided by NS&I.
In July 2014 HM Treasury decided that NS&I would deliver the new scheme of tax-free childcare (TFC) for HMRC by providing and administering the childcare accounts and supporting services. The arrangements between HMRC and NS&I were to be set out in a memorandum of understanding. NS&I proposed to amend its contract with Atos to include services related to TFC, without any government body undertaking a public procurement process in relation to this work.
Edenred are a company which provide services to employers under the old tax-relief scheme for childcare costs. Edenred considered that EU procurement law required a new tender process and commenced proceedings seeking declarations that the new TFC arrangements were unlawful under the Public Contracts Regulations 2006 and an order restraining the modification of the Atos contract. The High Court dismissed the claim holding that the proposed modification did not breach EU procurement law. Edenred appealed to the Court of Appeal and the appeal was dismissed on 31 March 2015. The Supreme Court heard the appellants' application for permission to appeal at the same time as their substanstive appeal, in order to provide a prompt determination.
The Supreme Court granted Edenred permission to appeal but unanimously dismissed their appeal.
The Court noted that the Public Contracts Regulations 2015 will govern the amendment of the Atos contract if it proceeds, therefore the judgment refers to regulation 72 of the 2015 Regulations which sets out the circumstances in which a contracting authority may modify a public contract without a new procurement process.
Edenred argued that the proposed amendments were substantial because they extended the scope of the contract considerably, encompassing services not initially covered. This argument did not succeed. The original contract covered operational services to support NS&I's existing functions and the expansion of the B2B services. The Court noted that the expansion provided for in this case was within a reasonable compass - it did not alter the essential balance of the operational services provided and included restrictions to maintain the economic balance of the contract and Atos' profit margin. The question is whether the services were covered in the original contract, including its provisions for contract variation. Otherwise, said the Court, outsourced services would not be able to accommodate the events and policy changes that are part of public life.
Edenred argued alternatively that there was in substance a public contract between HMRC and Atos - the Court disagreed. The memorandum of understanding between HMRC and NS&I and the Atos contract are legally distinct and it is NS&I, not HMRC, that can enforce the Atos contract.
This is a key judgment in respect of regulation 72 under the 2015 Regulations - the Court appear to acknowledge Edenred's argument that public authorities could use contracts framed in this way as a device for avoiding their public procurement obligations by allowing for future provision of unspecified services of a much greater value, Lord Hodge notes: "whether or not this is so, the focus must be on the particular contract. The scale and nature of NS&I's stated aspirations for the use of its infrastructure and other resources in providing B2B services to public sector bodies as well as its own retail financial services, which the Atos contract was designed to support, appear to be within a reasonable compass" (para.36).