Following its initial outcry and garnering of (some) public support, the current UK passport manufacturer De La Rue backed down from its challenge of the Government’s decision to award the new post-Brexit blue passport contract to Germalto UK Ltd, a Franco-Dutch company.
While this is a politically emotive topic for some, for procurement lawyers the outcome is not necessarily surprising. The very purpose of EU procurement law is to ensure that public authorities do not unlawfully favour national interests.
The current contract between the Home Office and British company De La Rue International Limited (De La Rue) to design and produce UK passports was entered into in 2009 and is due to expire in July 2019.
Following the launch of a tender for the new contract in early 2017, Germalto was appointed the preferred contractor by HM Passport Office on 22 March 2018 and was subsequently awarded the contract on 18 April 2018. In the intervening period, De La Rue started a very public campaign against the provisional decision to award the contract to Germalto which included a 300,000-strong petition demanding that the Government change its mind.
As the new passport contract is worth approximately GBP 490 million, the Government was required to run a formal procurement process where Europe-wide entities could tender. As explained in further detail below and notwithstanding the UK’s decision to leave the EU, UK public authorities must still comply with EU procurement law at least until any alternative arrangement is put in place post-Brexit. In light of this, provided the UK government complied with the procurement rules and applicable laws, De La Rue had quite limited scope to challenge the decision, as it ultimately came to accept.
EU public procurement rules – securing the “most economically advantageous tender”
Public procurement is the process by which public authorities purchase work, goods or services from companies. To create a level playing field for businesses across Europe, EU public procurement law requires that the award of contracts by EU public authorities must be non-discriminatory and comply with a set of minimum rules. This is to promote the free movement of goods, services and establishment between EU countries.
The tender for the new UK passport contract was run under EU Directive 2014/24/EU on Public Procurement, incorporated in the UK by the Public Contracts Regulations 2015 (the PCR). The particular competition for the contract required it to be awarded on the basis of the “most economically advantageous tender”.This enables the government to secure its objective of achieving value for money, achieved through competition, and pursuant to a specific set of award criterion of which price was just one factor.
There are various grounds on which an economic operator (any person or public entity that offers works, products or services) can challenge a decision under the PCR. Usually claims are brought where unsuccessful tenderers claim a breach of public procurement rules (typically that the process was flawed) led them to suffer, or risk suffering, loss or damages as a result.
The procurement rules also require a ten-day standstill period between the decision to award the contract to a preferred bidder and formal contract award. This offers unsuccessful bidders a key opportunity to bring a claim before the contract is signed. If they do commence proceedings, there is an automatic suspension of the contract award and the public authority cannot enter into the contract until the suspension is lifted by agreement or order of the court. If a claim isn’t brought in this window, a potential claimant can still bring a damages claim within 30 days from the date when they first knew or ought to have known that the grounds for starting the proceedings had arisen.
UK passport tender
De La Rue claimed that their bid was “the highest quality and technically most secure bid” and they questioned the sustainability of Germalto’s bid given its allegedly low costs. However, throughout the public debate over its decision, the Home Office maintained that Germalto was selected following a rigorous, fair and open competition. As Immigration Minister Caroline Nokes said, “in a fair procurement process, we had to look at quality, security and price, and [Germalto’s bid] was the contract that provided the best value on all counts”. On costs specifically, the Home Office claimed that changing contractor would save the taxpayer GBP 100-120 million, depending on the volumes of passports produced during the lifetime of the contract.
Despite its public protestation, the legal basis for De La Rue’s threatened challenge was not always clear. In order to give De La Rue additional time to consider its position and to seek additional information on the Government’s decision-making process, the Home Office extended the 10-day standstill period for two weeks. Following pre-action correspondence and the parties taking procurement law advice (including HM Passport Office and Germalto publically instructing leading procurement law QCs), De La Rue subsequently decided not to pursue the threatened litigation. Following the expiry of the extended standstill period, the Government promptly announced on 18 April 2018 that the contract had been awarded to Germalto.
Despite some of the emotive issues raised by this contract award, from a procurement law perspective the issues were relatively clear cut. De La Rue needed an argument other than its own nationality if it stood any chance of success.
Moreover, the risks for the Government of awarding a contract and improperly preferring national interests were recently highlighted by a decision of the CJEU in which Austria was found to have breached the applicable procurement rules for awarding ID document contracts without first conducting an open procurement competition (Commission v the Republic of Austria (ECLI: EU: C: 2018/194)). Austria’s arguments that the service contracts protected its security interest and therefore did not require an open procurement process failed as it was unable to demonstrate any risks to national security from conducting an open competition. Indeed, UK passports were previously required to be made in the UK but since 2009 a proportion have been made overseas. As the Home Office has said, there have been no security or operational concerns since then, and the UK would have real difficulty raising any national security concerns now.
The many benefits that UK companies gain from participating in EU procurements were often overlooked in the public debate. The post-Brexit procurement landscape is not yet clear, however if the UK really does wish to be “open for business” then it will need to have some form of procurement rules both to encourage competition and secure value for money within the UK and to ensure UK companies can compete on a level playing field in Europe.