Rules of engagement

The Cabinet Office Minister recently said he wanted to "bust a myth" that it is against EU law for public bodies to talk to suppliers informally before tenders. Martin Vincent analyses the claim.

On 21 November Francis Maude gave a speech containing various proclamations on public procurement and on the desirability of the UK public sector engaging with the marketplace before going out to a tendering exercise.

He said: “There is a myth prevalent across the public sector that talking to suppliers informally is somehow contrary to EU law. This is nonsense – straight forward nonsense. It is not illegal for public sector procurers to talk to suppliers. Not only is it not illegal, it’s plain common sense and good commercial practice.”

From a legal perspective, there’s little to criticise when these words are taken at face value but there are dangers in carrying out their effect.

For non-utilities bodies the principal regulations are the Public Contracts Regulations. Originally coming into force in 2006 they have been revised in 2009 and 2011. To a very large extent these Regulations copy a piece of European legislation – Directive EC 18/2004, which imposes a procurement regulatory regime across the EU.

The speech contained further principles, such as “Before procurement should come commissioning. Scanning the market to see what suppliers there are and what they can offer... our European neighbours, and good private companies, talk to suppliers first. Procurements are subsequently faster and more straightforward because bids can summarise and price what’s already been discussed. In future major procurements should only take place after we have spoken informally to our potential suppliers. So we can make swift off-the-shelf purchases where appropriate or quickly choose the right supplier for the job.”

There can be no doubt that there has been a significant rise in the number of court cases brought by disgruntled suppliers over the last three years. Most challenges under the Regulations are based on alleged breaches of the implied principles of transparency, equality of treatment and non-discrimination enshrined in Regulation 4 and it is easy to see how the recommended approach could fall foul of such principles. It would be possible for a supplier to allege that the bids that “summarise and price what’s already been discussed” have not been opened up to competition and that specifications and solutions have been skewed during the discussions leading to an “inequality of treatment” challenge.

The Regulations have quite a bit to say about specifications aiming to ensure that a “lock out” specification isn’t created. Specifications cannot be used in a way to favour a particular solution or provider except in extreme circumstances. The Regulations mandate that alternatives must be considered and this may be hard to reconcile with making “swift, off the shelf purchases”.

Maude also had something else to say on specifications, saying “We should be procuring on the basis of the outcomes and outputs we seek, not the detailed inputs. We should be focusing on the 'what', not the 'how'. This kind of procurement drives out innovative and competitive suppliers. So we will ensure that in future we focus on outputs and outcomes”. Use of output specifications is nothing new, but care must be taken to ensure that a selection process compares “apples with apples”. If a disappointed bidder could find provisions of the tender open to differing interpretations which would have made a difference to the preparation of his bid then he may have a strong case for challenge. Specifications must enable an experienced bidder to form a concrete idea of the requirement. This is difficult to do without an exhaustively detailed specification.

The implied duty to act with the required level of transparency could also be compromised. The test of a transparent process is currently best defined by reference to J Varney & Sons Waste Management Ltd v Hertfordshire County Council [2011] which states that (amongst other things) the criteria and subcriteria for “choos[ing] the right supplier for the job” cannot contain elements which, if they had been known at the time the tenders were prepared could have affected the preparation; and they cannot be adopted on the basis of matters likely to give rise to discrimination against one of the tenderers. Again the risks in a “bids can summarise and price what’s already been discussed” approach are obvious.

We have also started to see cases where this test of transparency applies to statements made outside of the tender exercise. In R (on application of the Law Society) v Legal Services Commission [2011] the LSC had embarked on a process of engaging with the marketplace to explain to them the allocation of legal aid contracts ahead of a tendering exercise. When the invitation to tender went out it became clear that a significant number of marks would only be available if the responding firms had certain accreditations. The Law Society sought judicial review of the LSC’s procurement, not on the basis that the criteria was illegal in itself, but rather that the process was unfair and incapable of achieving the desired result as the consultation process that preceded the procurement was, in relation to the award criteria, unclear and misleading and by the time the award criteria was published, it was too late to become accredited.

The court found the consultation did not make clear the importance of accreditation, and gave no hint that no opportunity would be given to obtain the accreditation. The court stated that the timing of the announcement of the criteria – which made it impossible for bidders who hadn't already obtained accreditation to do so was irrational, as it unfairly and arbitrarily reduced the number who would otherwise have been awarded maximum points.

The Regulations already contain a compliant mechanism whereby a contracting authority may meet Maude’s desire to “quickly choose the right supplier for the job". That mechanism for contracts subject to the Regulations is the use of framework agreements, in the absence of which there is no alternative process and the UK government is not at liberty to invent one.

The implementation of the Directive is policed by the Commission who regularly take enforcement action against member states who have not implemented the regulations, or who choose to ignore them, or seek to vary the Directive by selective implementation. This was recognised in the speech, with Maude commenting that he will be “negotiating with the European Commission for a radical simplification of the public procurement Directives to reduce costs for business and for procurers”. Time will tell how successful this will be.

There can be no doubt that engaging with suppliers generally can deliver results, but contracting authorities should:

• Ensure that assessment regimes do not become skewed in favour of one supplier or one solution where there is genuinely more than one option
• Always make sure that each bidder has access to the same information while compiling its proposal
• Disclose the award criteria and be satisfied that they are rationally defined and applied, and
• Make sure the suppliers all understand the subject matter of the procurement and can form a concrete idea of your requirements.

Martin Vincent is a solicitor at Weightmans. He can be contacted on 0161 214 0553 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it. .