Supreme Court hears procurement challenge over plans for tax-free childcare

A procurement challenge to the Government’s proposed arrangements for the delivery of tax-free childcare reached the Supreme Court this week.

The dispute in Edenred and another v Her Majesty’s Treasury and others UKSC 2015/0080 arose when, after a consultation process, the Government allocated provision of childcare accounts and associated services worth £132.8m under the Tax Free Childcare ("TFC") Scheme to National Savings and Investments, to be delivered under a pre-existing outsourcing contract with Atos.

The appellants – providers under the original Employer Supported Childcare scheme – claim that this allocation was incompatible with the requirement under EU law that new public services contracts are subject to a tender procedure.

However, they lost before both the High Court and the Court of Appeal.

The Chancellor of the High Court, Lord Justice Etherton, agreed with Mrs Justice Andrews’ High Court ruling that a memorandum of understanding between HMRC and NS&I was not a public contract within the Public Contracts Regulations 2006.

Lord Justice Etherton also said he did not accept that proposed amendments to the Atos contract for the provision of services relating to the TFC scheme engaged the 2006 Regulations.

“It is clear from….the court's judgment in Pressetext that an amendment may not be regarded as constituting a material change, and so amounting to the offer or award of a new contract, for the purposes of the 2004 Directive and the 2006 Regulations if it was provided for in the terms of the initial contract,” he added.

Lord Justice Etherton said he considered the change provisions in the Atos contract to be “sufficiently clear, certain and precise in anticipating and embracing the proposed amendments for the TFC scheme that the proposed amendments are not properly to be regarded as constituting the offer or award of a new public contract”.

The proposed amendments to the Atos contract in respect of the provision of outsourced services for NS&I to fulfil its obligations to HMRC under the MoU fell “clearly and squarely” within the scope of what was anticipated and intended to fall within the contractual change provisions in the Atos contract, he found.

The issues before the Supreme Court were:

1. Whether the addition of £132.8m worth of tax free childcare services to NSI's contract with Atos would amount to a material variation of the contract, which is prohibited in the absence of a tender competition for the right to provide such services? ("the variation issue")
2. Does domestic law entitle either of the appellants to relief so as to prevent a direct award of work to Atos without any advertisement or tender, in breach of the EU procurement regime? ("the standing issue")

A five-justice panel – comprising Lord Neuberger, Lord Mance, Lord Sumption, Lord Carnwath and Lord Hodge – heard the case on 13-14 May.