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Direct Awards of PPE Contracts - What Lessons Can Be Learnt?

on Wednesday, 19 May 2021.

Following the recent National Audit Office (NAO) report and challenge by the Good Law Project into government procurement during coronavirus, we discuss the pitfalls of direct awards and the key lessons for higher education institutions.

Procurement has come under intense pressure as a result of the coronavirus (COVID-19) pandemic. The procurement rules seek to ensure public bodies adhere to fair and reasonable timetables and procedures, encourage open competition and transparency and deliver best value.

However, the time it takes to run a procurement procedure is often a constraining factor. One of the challenges over the last twelve months has been managing procurement activity in the face of an ongoing pandemic. Critical and urgent procurements, together with other procurements which may not have started as urgent, have become priorities, due to the volume of additional work created by the pandemic.

What Does The Law Say?

The public procurement rules recognise there are certain circumstances when public bodies, including universities, can derogate from the general principle of advertising and tendering contract opportunities and directly award a contract. The two key derogations relate to the direct award of new contracts and modifying existing contracts. These are narrowly interpreted.

The most common grounds for direct awards of new contracts under Regulation 32 (use of the negotiated procedure without prior publication) of the Public Contracts Regulations 2015 include where:

  • No tenders or suitable tenders have been submitted in a previously advertised open or restricted procedure. This is subject to the condition that there are no material changes to the requirement and any subsequent award is made on substantially the same terms.
  • The requirements can only be met by a single provider. The threshold for relying on this ground is high – a contracting authority needs to be able to show there is only one provider in the relevant market supported by market studies, not simply that other suppliers would be more expensive or would face economic or technical difficulties in meeting the requirements.
  • There is extreme urgency coupled with unforeseeable events (not attributable to the contracting authority) and the accelerated timescales for going out to tender using the open or restricted procedures cannot be complied with. Prior to the coronavirus pandemic, this ground had been argued but had rarely, if at all, been successful. The use of this ground to address the coronavirus pandemic has been confirmed by the Cabinet Office in its Procurement Policy Notes 1/20 and 1/21 but only after public bodies have satisfied themselves that there are no other alternative routes and have taken steps to address some of the commercial risks associated with direct awards, such as lack of competitive tension or risk of conflict of interest.

Moreover, the use of the direct award process should only be used to address public health risks or to react to a current situation that is a genuine emergency. In practice, this will be a high standard to meet. The latter might cover, for example putting in place essential IT contracts in response to lockdowns announced at short notice in order for universities to be able to carry on their teaching work.

Importantly for universities, there is an additional ground under Regulation 32(5) where products are manufactured for research, experimentation, study or development purposes only and not for commercialisation.

The maximum duration for contracts directly awarded under Regulation 32 is stated to be three years (Regulation 32(6).

For contracts that have already been awarded, Regulation 72 (modifications of contracts during their term) provides greater flexibility permitting modifications to contracts brought about by the unforeseen nature of the pandemic, provided that the overall nature of the contract is not altered. This permits the scope of the contract to be increased by up to 50% of the original value of the contract.

If a contracting authority is using any of these derogations, in all cases there is a requirement for a contract award notice to be published not later than 30 days after the award.

There have been a couple of important recent cases looking at how these rules have been applied in practice.

Coronavirus real estate 2

How Have These Rules Been Applied In Practice?

The NAO investigation into government procurement during the COVID-19 pandemic, commissioned as a result of the enormous volumes of goods, services and works procured during the first lockdown with extreme urgency, makes uncomfortable reading.

The report found that by 31 July 2020, the Government has entered into £10.5 billion worth of new contracts by direct award (not including call offs under framework agreements) and a further £0.7bn through amendments or extensions to existing contracts.

The report identified a number of shortcomings in the process for awarding direct contracts:

  • it was not always clear how particular suppliers invited to bid had been selected and the criteria and rationale for selection
  • insufficient due diligence of potential suppliers was undertaken potentially putting the Government at risk of poor contract performance
  • steps were not taken to mitigate the risks of potential conflict of interest
  • some contracts were awarded retrospectively
  • lack of a clear audit trail
  • failure to publish contract award notices in a timely manner or at all.

At paragraph 15 of its report, NAO concludes that “Without competition in the procurement process, it becomes even more important that public bodies document their procurement decisions and actions fully, publish their contract notices in a timely manner and manage conflicts of interests effectively. These actions help to maintain the public trust in these processes and to prevent procurement decisions being the subject of challenge”.

The failure to publish a contract award notice in a timely manner or at all has also been the subject of a legal challenge in R (Good Law Project Ltd) v Secretary of State for Health and Social Care [2021]. The challenge was brought against the Secretary of State for Health and Social Care (SoS) in respect of contracts for services awarded in the COVID-19 pandemic.

The High Court held that the SoS had failed to comply with procurement regulations and government policy requiring the publication of tender and contract documents when awarding contracts during the COVID-19 pandemic.

Application to Universities (Contracting Authorities)

The legal consequences for contracting authorities of a direct award, which is successfully challenged as falling outside the scope of the derogations, is that the contract can be set aside for ineffectiveness and the contracting authority fined, together with damages claims.

This risk might be mitigated to some extent by publication of a voluntary transparency notice before the award of the contract.

A real-time audit trail setting out the need for a direct award, the steps considered to procure the requirement, the rationale for the route adopted and an explanation of how suppliers have been chosen may assist the contracting authority in ensuring its decision is robust and may also help defend any subsequent challenge.

If urgency is being used as the basis for the award, this should be carefully scrutinised to ensure that it meets the test of a genuine emergency. This is likely to be harder for non-NHS contracting authorities to demonstrate unless the nature of the contract is for public health. One of the proposals under the Cabinet Office’s Green Paper on Transforming public procurement is to widen the scope for direct or limited tendering to include a government-declared crisis to make this easier.

As part of its business case for a direct award, contracting authorities should also consider what steps they can take to ensure best value, for example, through ensuring that suppliers meet minimum financial checks and where possible, negotiating with more than one supplier.  

A version of this article originally appeared in the London Universities Purchasing Consortium Linked Magazine Spring 2021.

For further information please contact Stephanie Rickard in our Procurement and Subsidy Control team on 07384 251896. Alternatively, please complete the form below.

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