Clearly the spread of COVID-19 and the measures imposed by the Government will have a significant impact on the supply of goods, services and works to the public sector. Supplies and services may be required urgently and/or existing procurement processes may be delayed to accommodate issues connected to COVID-19. Indeed, we are being contacted by many organisations affected by these events.
However, at least during the transition period, the public sector remains subject to the EU's comprehensive public procurement regime. Those rules promote the importance of open competition across the EU market and therefore any derogation from this requires robust justification or authorities can be open to challenge.
This is the first in a series of articles which will focus on some of the key issues which could arise in the context of COVID-19 and public procurement. Yesterday, the Cabinet Office published a helpful Procurement Policy Note ("PPN") in response to the issue. This first article discusses the scope of the PPN and focuses on where an authority is permitted to enter into a contract without competing or advertising the requirement due to grounds of urgency.
What are the key issues covered by the PPN?
The PPN was published in response to issues which could arise for public sector procurers due to COVID-19. It provides a helpful reminder of some of the mechanisms available to authorities to tackle some of the complex practical issues faced and how to remain compliant with the public procurement regime. In particular, it covers:
- directly awarding a contract on the grounds of extreme urgency (i.e. exploring the circumstances where the authority does not need to advertise the opportunity and run a competition);
- directly awarding a contract due to absence of competition or protection of exclusive rights;
- calling off from an existing framework agreement or dynamic purchasing system;
- running a competition, but applying an accelerated timetable; and
- extending or modifying existing contracts.
Do the circumstances constitute 'extreme urgency'?
In this article, we focus on the first ground referred to above – directly awarding a contract on the grounds of extreme urgency (i.e. no advertisement is published and no competitive procedure is undertaken). In the context of COVID-19, regulation 32(2)(c) of the Public Contracts Regulations 2015 ("PCRs") enables authorities to enter into contracts without competing or advertising the requirement so long as they are able to demonstrate the following tests have all been met:
- cases of extreme urgency;
- where those events are brought about by events unforeseeable by the contracting authority; and
- the time limits for the open or restricted procedures or competitive procedures with negotiation cannot be complied with.
First and foremost, it is necessary to question whether the requirement is genuinely urgent. The PPN provides an example of when this may be the case, e.g. an authority needs to respond to some of the consequences of COVID-19 immediately because of public health risks or loss of existing provision at short notice. In such circumstances, the authority would need to show that it is reacting to a current situation that is a genuine emergency - not planning for one.
The PPN re-iterates that this exemption cannot be utilised where it could be argued that the contracting authority should have foreseen the events concerned. The PPN recognises that the COVID-19 situation is so novel that the consequences are not something an authority should or could have predicted.
Thirdly, there would need to be clear reasons why an 'accelerated' public procurement procedure could not be run. This would include an argument as to why there is no time to place a call off contract under an existing framework agreement or dynamic purchasing system.
Finally, the situation cannot be attributable to the contracting authority, i.e. the authority has not done anything to cause or contribute to the need for extreme urgency.
Note that any contracts entered into utilising this exemption should only be limited to what is absolutely necessary in terms of what is being procured including the scope and intended length of the contract. Similar provisions are also included in the legislation which covers utilities and defence procurement and again, the use of those provisions should be in accordance with the guidance set out above. We would also emphasise the importance of ensuring that a robust justification for the use of this ground is retained as part of an authority's internal records.
What are the consequences if a procurement process is not undertaken?
Any derogation from the obligation to advertise an opportunity and run a full tender process needs to be supported by a robust and legitimate justification. Where this is not the case, a challenger can seek a range of remedies from the Courts, including but not limited to, a 'declaration of ineffectiveness' which has the effect of rendering the contract 'void' as of the date of the Court's declaration. If the Court grants this remedy, the authority concerned is also required to pay a civil penalty and may also be required to pay damages to the challenger in addition to their legal costs.
Only last year, the Department of Transport ("DfT") agreed to pay Eurotunnel £33m as part of an out-of-court settlement following legal action over three ferry contracts to handle extra capacity in a no-deal Brexit. According to a notice published in the Official Journal of the European Union, the DfT relied on the urgency exemption discussed above, alleging a "situation of extreme urgency" brought about by the imminent departure of the UK from the EU, and the prospect that this could be on a no-deal basis. There were a number of factors which undermined the alleged 'urgency', including the fact that some form of competition was undertaken between a selected number of suppliers, however not pursuant to the public procurement rules and at the time, two years had passed since the referendum result. This case provides evidence of the high bar which may need to be reached, to justify use of this exemption.
Will further guidance be published by the Cabinet Office?
Yes. The Cabinet Office has stated that the exact response to COVID-19 will be tailored to the nature, scale and location of the threat in the UK, as its understanding develops. The PPN specifically refers to issues such as supply chain disruption and taking action in response to supplier claims of 'force majeure' or contract 'frustration'. These and other issues will be covered in future PPNs.
Where can I find out further information?
A copy of the PPN can be found here. Additionally/alternatively, we have a strong team of public procurement specialists who have significant experience advising both public and private sectors on all aspects of public procurement law compliance, including the use of exemptions as discussed in this article. Please get in touch with any member of the team if any of the issues raised in this article are relevant to you.