A high price to pay

David Hansom looks at the complex issues for both authority and bidder where confidential information is obtained during a public procurement exercise.

Public procurement is undoubtedly getting harder. Whilst the European Commission has just closed its consultation on proposed reforms aimed, in part, at simplifying the rules, spending cuts in the UK have led to a dearth of new opportunities and fierce competition for those which remain. Authorities face a relentless increase in challenge/complaint and bidders look for every advantage that they can gain over their rivals.

Bidders may be tempted to use insider information to give their bid a head start. Typical information might include financial information or authority technical documents. But using information obtained or solicited from insider knowledge can have huge repercussions for both the authority and the bidder.

Under the Bribery Act (which came into force on 1 July 2011) offering an inducement or incentive to the insider to obtain information could amount to criminal conduct. If the conduct comes to light during the procurement process, it is likely that the bidder will be disqualified.

But the impact is much wider. Certain bribery offences will lead to mandatory exclusion under the Public Contracts Regulations 2006. Any organisation convicted of either the offence of bribery (section 1) or bribing a foreign public official (section 7) must be treated as being ineligible for any public procurement process where the authority has actual knowledge that the bidder or any of its directors is guilty of either offence. The Ministry of Justice has however recently confirmed that the new offence of failing to prevent bribery (a section 7 offence) will lead to discretionary rather than mandatory exclusion.

This all matters because corporate offences do not expire and so convictions under the Act could result in a bidder's permanent exclusion from any future public procurement processes where the authority has actual knowledge of the offence. In sectors with a small number of established players this would have a real impact on an organisation's ability to win work in the public sector. Bidders are also likely to complain about inconsistent application of the discretionary grounds by different authorities because of the risk of market exclusion.

Other bidders may want the process to be stopped and restarted but this is not always desirable or practically possible, for example, where frameworks are quickly expiring or major strategic projects need to be delivered. This is not the only option to manage procurement risk and a case by case assessment should be undertaken to determine a pragmatic and commercially acceptable solution.

Bidding teams should agree their standard response to the issues to help minimise the risks of being excluded from the procurement. Organisations also need a clear protocol to manage the risk where it is offered but does not actively seek the confidential information so that this can be reported to the authority quickly.

From the authority's perspective, there is considerable risk of damages claims by other candidates if it the authority knows about the inside information leak to the bidder but does not rectify the position to ensure equal treatment and non discrimination. The reputational and political impact of these issues can be just as damaging as a formal legal challenge and could also lead to scrutiny in terms of audit and call-in of decisions.

Policies should be clear of the risks to officers and advisors in sharing confidential information and there should be a clear protocol as to how to treat discretionary exclusion/the steps that will be taken to deal with insider information leaks. Many authorities are currently training their buying teams and senior management teams on the impact of the Bribery Act and these issues.

Dealing proactively with the issues head-on can avoid costly and time-consuming cancellation of processes which will help all parts of the public sector to deliver more with less through its procurement activity.

David Hansom is a Partner in Veale Wasbrough Vizard's Commercial team based in London.  He can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it. or on 020 7665 0808.