Treasury defeats procurement challenge to delivery of tax-free childcare

The Treasury has successfully fought off a High Court procurement challenge to way the Government’s new policy on tax-free childcare (TFC) is to be delivered.

The claimant in Edenred (UK Group) Ltd v Her Majesty's Treasury & Ors [2015] EWHC 90 (QB) is one of the private commercial operators that administer the voucher scheme under the current ‘Employer Supported Childcare’ scheme.

Following extensive consultation, the Treasury chose not to invite tenders for the provision of childcare accounts for the replacement TFC.

Instead, it decided together with HM Revenue & Customs to keep the matter in-house – without running a tender – and utilise National Savings & Investments (NS&I), a government department and Executive Agency of the Chancellor of the Exchequer, to provide and administer childcare accounts and supporting services.

NS&I’s back office operations had been contracted out to Atos IT UK in April 2014 after a public procurement process complying with the Public Contracts Regulations 2006.

Edenred advanced two grounds of challenge, namely that:

• The arrangements for delivering TFC would involve the conclusion of a public services contract within the meaning of the 2006 Regulations or economic opportunity falling within Article 56 TFEU between either or both of HMT and HMRC on the one hand, and NS&I on the other; or alternatively that
• The arrangements would involve a material variation of an existing public services contract between NS&I and Atos, i.e. the outsourcing contract (without a tender).

Mrs Justice Andrews rejected the claim. On the first ground, she said: “In substance and in reality what has happened here is that the Government has decided to deliver TFC itself, internally, rather than through an external provider.

“The arrangements between HMRC and NS&I do not constitute a public contract and there was no ‘opportunity’ that was required to be offered to the market. The fact that the implementation of this decision is not confined to HMRC, but involves HMRC making use of another government department, NS&I, which is part of HMT, to set up and administer the childcare accounts, does not change the character or the substance of what is planned from an essentially in-house implementation of policy into the sort of external arrangement that would attract the requirements of the procurement Regulations.”

Neither would the fact that NS&I had already outsourced its back-office functions to Atos attract those requirements, the judge said, “unless the delivery of the services would not fall within the ambit of the existing outsourcing arrangement but would require what is essentially an entirely fresh outsourcing contract”.

Mrs Justice Andrews also rejected this ‘material variation’ ground.

“In the present case the procurement of the Outsourcing Contract did expressly cater for contract changes to include the provision of future B2B services, up to a financial ceiling of £2bn, so the key issue is whether the contract changes made by the Amendment Agreement [to the contract between Atos and NS&I] to cater for the delivery of the necessary outsourcing services supporting childcare accounts was tantamount to the award of a separate, second contract to Atos,” she said.

“In my judgment, given the terms and scope of the OJEU Notice, it was not. Objectively there is no intention of NS&I and Atos to renegotiate the essential terms of the Outsourcing Contract; on the contrary, the intention is to implement those terms exactly as was envisaged when the contract was made.”

The services to be delivered by Atos to allow NS&I to deliver childcare accounts fell within the scope of what had been advertised, and what any reasonable bidder would understand to have been advertised for tender, the judge said.

If there had been a variation of the services to be provided from those that were advertised, she added, the variation was not material. “The Amendment Agreement meets none of the characteristics of the three examples of material variation given in Pressetext.”

Mrs Justice Andrews found that there had been no breach of the Directive, the Regulations, or Art 56 of the TFEU.

“The decision that TFC should be delivered by NS&I working in co-operation with HMRC was therefore lawful despite the fact that Atos will be providing the operational services necessary to enable NS&I to deliver those aspects for which it is responsible, namely, childcare accounts and supporting services,” she said.