Back in March 2018 the Department for Transport (DfT) published new guidance for promoters of new rail projects that may or may not require some Government support or funding. These are known as market led proposals or MLPs. We summarised this guidance in our article, Time to Invest in Rail. Since then, we have attended the two Rail Investment Opportunity Days and also hosted and spoke at Waterfront's 4th Annual UK Rail Station Development and Regeneration Conference.
What is coming out of those events is that promoters of potential MLPs are worried. Unless their scheme is a Category 1 scheme, requiring no funding, contractual requirements or exclusivity (in reality there will be very few of these), they will be a Category 2 scheme. That means, according to the Guidance, that because they are competing with other schemes for public money, they will have to go through procurement – and more than one procurement, at that.
The MLP process
There are five stages in the MLP process, which follow the same five decision points as the Rail Network Enhancements Pipeline (RNEP): Determine, Develop, Design, Deliver and Deploy. A promoter can develop a Category 2 MLP to any extent at its own risk and apply to enter the process at the appropriate stage of development, (i.e. the stage where it needs government support to continue). A Category 2 scheme is likely to enter either at the very beginning (Pre-Determine), or at the Develop, Design or Deliver stage. To explain in more detail:
The Pre-Determine stage is a preliminary stage where an MLP identifies an opportunity or answers a call for ideas from the DfT. At this stage MLPs are not competing against each other but are evaluated against set criteria.
If the DfT decides the scheme is an opportunity worth exploring, the scheme moves to the first formal stage, Determine, and the DfT might do some market testing. The promoter produces a strategic outline business case and an outline delivery plan but there is no commitment to the scheme at this stage.
If the DfT decides to take it further, the scheme moves to the Develop stage (in practice, the DfT think most MLPs will enter the process at this stage if not at the Pre-Determine stage). This is where the procurement process starts.
At this stage the promoter prepares an outline business case and a detailed delivery plan. The procurement is based on an outcome-level specification, i.e. bidders submit proposals on how they would meet the outcomes. According to the Guidance, the outcome-level specification is sufficiently high level to negate any concerns for the protection of intellectual property (IP).
The winning bid progresses to the Design stage. There is of course a risk that the original promoter, who prepared an outline business case and detailed delivery plan and worked with the DfT to develop the outcome-level specification of the scheme, might not win the tender. Once the DfT selects the winning bid, the DfT is committed to carry out the Design stage.
In the Design stage the promoter of the winning bid develops a full business case, which the DfT reviews and makes a decision whether to proceed to Pre-deliver procurement.
This is the second procurement stage. It is based on an output level specification that the promoter and DfT develop together. This may require detailed information to be issued to ensure a fair process, although the Guidance says that the DfT will work alongside the incumbent to ensure that IP is protected.
The procurement results in a scheme solution being selected. The winner delivers the MLP, which moves to the Deliver stage. Again, there is a risk that the winner of the design procurement might not end up delivering the scheme.
At the Deliver stage, the winner delivers the scheme solution in line with the specification and procured delivery structure.
There might be further procurements to determine the construction partner, asset operator and maintainer.
The final stage is the Deploy stage, where the scheme is fully constructed and ready to enter operation.
Protecting your IP and confidentiality
So the two key procurements are the design (the best way to deliver the required outcome) and the delivery (the scheme solution). The DfT wants MLPs that propose the use of novel technologies and techniques. How should bidders ensure their IP and commercial confidentiality are protected?
Firstly, bidders who have developed IP should consider if it can be protected by registration as a patent, registered design or registered trade mark. Registration brings proof of ownership (making it potentially easier to enforce) and also enhances the commercial value, making it easier to sell or licence.
However, much of what a bidder has created may not be capable of registration, but may be protected by copyright – a right which arises automatically. This is likely to be the case for drawings and written specifications. For these kinds of materials, bidders would be wise to ensure that an IP notice appears on all documents, setting out the fact that the bidder is the owner of all intellectual property rights (including copyright) in the work in question and that unauthorised use or copying is prohibited.
Bidders should also consider limiting the amount of material that they provide. For example, is it possible to provide sufficient material to enable the DfT to assess the bid whilst holding-back a certain level of detail until a later stage?
Similarly, it would be good practice for bidders to ensure that all confidential materials are clearly marked as such and that the distribution of confidential material is strictly controlled and kept to a minimum. For examples, bidders should consider password-protecting electronic files and using settings which prevent printing or making copies. Ideally, confidentiality terms should be agreed with the DfT prior to the disclosure of any confidential information, setting out limitations on use, a requirement only to share the materials with those individuals who are involved in the tender process and an obligation to return or destroy materials when the bidder requests.
The DfT seems convinced that a procurement will be necessary in order to ensure value for money and also fairness and transparency for investors. Paragraph 3.27 of the Guidance states that "Category 2 MLPs will automatically trigger a procurement when they enter the Design stage". It seems unlikely that a procurement can be avoided. So there is a chance that a promoter could design a scheme but then not be selected to deliver it, or spend time and money producing a strategic outline business case and outline delivery plan and not even get to the Design stage. The Guidance says nothing about whether a party can recover their bid costs in those circumstances.
There are also timescales to consider. Running a procurement takes time. According to the Guidance, the time taken between the decision to develop and the start of a procurement can be anything from 6 months (for a small project like a £1m station upgrade) to 3 years for a large project like a £1bn new railway line.
In an ideal world, MLPs would fall into Category 1 and not need any Government support or funding. In reality, if the Government wants the private sector to help it improve our rail network, it needs to take on more of the risk. As it stands, promoters will need to think carefully about how to frame their proposals and what IP and confidential information they will need to disclose. As always, early legal advice is key.