This briefing was updated on 29 April 2020.
How far does the current COVID-19 crisis justify contracting authorities departing from the normal procedures under EU and UK public procurement rules? What measures should contracting authorities be taking during the current crisis to ensure service continuity for existing contracts? In this briefing, we look at recent UK government guidance and highlight the key points, both for suppliers and contracting authorities.
Procurement by public bodies (or "contracting authorities") in the UK is subject to the regime set out in the Public Contracts Regulations 2015 ("PCRs") and related statutory instruments, which among other things seek to ensure that in procuring goods, services and works contracting authorities adhere to fair and reasonable timetables and procedures and encourage open competition.
The COVID-19 pandemic is already requiring, and will continue to require, contracting authorities to procure products and services from the private sector with unprecedented urgency. Indeed, some examples of urgent UK Government COVID-19 related procurements have been discussed in the press over recent weeks, including the award of certain contracts for the manufacture of ventilators.
Furthermore, the COVID-19 pandemic may mean that goods or services can no longer be provided in the same way – or indeed at all – under existing contracts, which may ordinarily entitle contracting authorities to withhold payment for such goods or services. UK Government advice to contracting authorities is that contract requirements should be varied to enable (i) insofar as possible, supply to take a different form during the current crisis, and/or (ii) continued payments to suppliers or supply chains considered 'at risk' to ensure continuity of supply both during and after the crisis.
Failing to properly navigate their statutory requirements while doing so could give rise to a number of issues for contracting authorities. For example, the procurement or contract variation could be challenged by suppliers not awarded the contract on the basis that, had they been allowed to tender (either originally or for the newly varied contract), they could well have won the business. Such challenges are increasingly common; a recent example is the successful challenge by Eurotunnel to the UK Government's 2018 decision to award a contract for extra cross-channel freight capacity without following the normal public procurement procedures.
In recognition of these issues, the UK Government has published two sets of guidance on how public procurement rules should be applied in such circumstances. The key points of this guidance are summarised below.
On 18 March 2020 the UK Cabinet Office published a policy note providing guidance to contracting authorities and suppliers as to the options already available to contracting authorities under the PCRs in circumstances where there is an urgent need to procure goods, services or works due to COVID-19 (the "Procurement Guidance").
The Procurement Guidance both highlights some of the less commonly used procurement procedures that are intended for exceptional circumstances such as these, and reminds authorities of the more standard procedural mechanisms under the PCRs that may assist contracting authorities in the current circumstances to obtain the supplies they need in as short timeframes as possible. It also emphasises in each case the need for contracting authorities to keep proper written records of all decisions and actions taken on individual contracts, to mitigate against the risk of a successful legal challenge, and to publish the relevant notices in the the Official Journal of the European Union (OJEU) as required under the PCRs
The Procurement Guidance highlights a number of options available to contracting authorities where they are concerned that full compliance with the normal public procurement rules will be difficult or impossible in current circumstances. These include the following (which are discussed in more detail in the remaining sections of this briefing):
It also reminds contracting authorities of other procedures available under the rules which may assist, such as the so-called "light touch" regime applicable to certain categories of contract and the possibility of organising the procurement as a "call-off" under an existing framework agreement or dynamic purchasing system.
These procedures, as well as key issues for bidders to keep in mind, are explained below in Sections 3-8.
The UK Cabinet Office has also issued additional guidance for contracting authorities regarding payment of suppliers to ensure service continuity during and after the COVID-19 pandemic (the "Supplier Payment Guidance"). The key points of this guidance are summarised in Section 9 below.
Normally, the public procurement rules require contracting authorities to advertise the existence of the contract opportunity in advance and to conduct a competitive tender, with timescales prescribed by the rules. For example, in principle, a contracting authority using the "Restricted Procedure" must allow 30 days for bidders to respond to the Pre-Qualification Questionnaire and a further 30 days to submit tenders. Clearly, where the contract needs to be put in place as a matter of urgency, such a timetable may not be appropriate (and although the rules allow for shorter timescales in some cases, these may still result in a tender process that is simply too long to be of any assistance).
Making a direct award involves dispensing with advertisement and competitive tender altogether. Contracting authorities may make a direct award under Regulation 32(2)(c) PCRs where, for reasons of extreme urgency brought about by events unforeseeable by the contracting authority, the time limits for the open procedure, restricted procedure or competitive procedure with negotiation cannot be complied with.
The Guidance emphasises the following points regarding direct award for reasons of urgency in the context of Covid-19:
The Guidance emphasises that in using this procedure contracting authorities must be able to prove (by provision of relevant detailed written evidence) that the circumstances justifying use of this procedure have been met, and continue to assess as time goes on whether the conditions outlined above remain applicable (in particular as what is initially unforeseeable may become foreseeable over time).
The Procurement Guidance explains that a contracting authority may also make a direct award (without a tender process) under Regulation 32(2)(b) PCRs where the works, goods or services needed to respond to COVID-19 can only be supplied by a particular supplier by reason of either (i) competition being absent for technical reasons (e.g. there is only one supplier with the expertise to do the work, produce the product or with capacity to complete on the scale required), or (ii) the protection of exclusive rights, including intellectual property rights (e.g. the supplier owns or has the exclusive right to exploit those rights).
The Procurement Guidance emphasises, however, that a contracting authority should only use this procedure in circumstances where:
The Procurement Guidance highlights that Regulations 27(5), 28(10) and 29(10) of the PCRs provide the ability for contracting authorities to reduce the minimum timescales required for the open procedure, the restricted procedure and the competitive procedure with negotiation in circumstances where a state of urgency renders the standard timescales impracticable. Under these reduced timescales, authorities could, for example, require tenders to be submitted within 15 days of the call for tenders.
To use these accelerated timescales there is no express requirement for the situation to be unforeseeable or not attributable to the contracting authority. However, the state of urgency must be duly substantiated by the contracting authority.
Extending or modifying an existing contract may be an attractive option for a contracting authority in the current crisis because – like direct award – it potentially avoids the need for advertisement or a competitive tender process altogether. However, whilst Regulation 72 PCRs permits certain modifications (including extensions) to existing contracts, this is subject to a number of important constraints/conditions, which are highlighted in the Procurement Guidance.
The Guidance emphasises the following points regarding modifications or extensions of existing contracts in the context of COVID-19:
The Procurement Guidance also reminds contracting authorities of certain other mechanisms by which they may be able to obtain supply of products or services within shorter timescales, including:
It is likely that, in order to deal with the consequences of the COVID-19 pandemic as a matter of urgency, public authorities will make direct awards of contracts without any advertisement or tender process (as would normally be required under the public procurement rules). The key risk in this situation is that the procurement is challenged by another potential supplier. If successful, that challenge could result in a court declaring the contract to be ineffective – which could be particularly damaging if, for example, the contract was only profitable if it lasted its full term. However, it is possible to agree in advance with public authorities what the consequences will be if a contract is declared ineffective (including who will bear the costs). Such agreements can offer a degree of protection against the risk of entering into a contract with a public authority based on a direct award. We would also recommend that companies obtain their own independent assessment of whether the authority is justified in making a direct award – because, as explained above, the Procurement Guidance makes it clear that COVID-19 does not give public authorities carte blanche to do as they please on matters covered by the public procurement rules.
As a result of the COVID-19 pandemic the supply of goods or services to contracting authorities under existing contracts could in many cases be reduced or stopped entirely due to supply chain issues, a drop in demand or incapacity to fulfil the contract due to UK Government restrictions in place, for example. The Supplier Payment Guidance provides guidance on the steps contracting authorities should take vis-à-vis their suppliers with a view to ensuring service continuity during and after the COVID-19 pandemic.
Although these measures will no doubt be welcomed by suppliers as offering helpful additional flexibility, they are very much at the discretion of contracting authorities. Suppliers should not therefore assume that contracting authorities will offer these types of relief unprompted; in some cases, suppliers may need to persuade their customers that such steps are justified under the Supplier Payment Guidance.
