Cambridgeshire County Council is likely to have breached procurement law in two cases in 2017/18, which left it open to legal challenge, legal advice received by the local authority’s then external auditor BDO has said.
The procurement weaknesses emerged as part of BDO’s value for money work for the year ended 31 March 2018, following receipt of an objection from a local elector and subsequent discussions with management. They were contained in a finalised report received by the council last week (16 November 2021).
In relation to two audit risks – sustainable use of resources and revenue generation – the auditor’s finding was that there were no issues identified that impacted on their overall value for money conclusion. However, with respect to the procurement audit risk, BDO concluded that they needed to modify their opinion on an ‘except for’ basis.
The first of the two procurement issues related to a seven-year, £5.6m contract that Cambridgeshire entered into in 2015 for winter gritting.
BDO’s report set out the process the council followed to seek multiple quotes and then informally consult with Members ahead of the contract being awarded.
However, the auditor detected that in this case the council did not follow its own Contract Procedure Rules, principally by failing to meet the statutory requirement to advertise the contract opportunity in the Official Journal of the European Union; to document (and retain) the appropriate internal exemptions and approvals for the procurement approach; or to seek a formal decision by members at committee.
In a report to a meeting of the Audit & Accounts Committee to be held later this week (25 November), Cambridgeshire’s Director of Resources said the council recognised “these are serious failings”.
The Director of Resources' report noted that although the procurement errors identified preceded the 2017-18 year under consideration, as this was a seven-year contract, expenditure continued during the relevant period and during this current financial year 2021-22.
Having been notified by BDO of its provisional finding in August, Cambridgeshire sought its own legal advice from Trowers & Hamlins at that stage as to the current situation.
The Director of Resources’ report said: “Officers’ view is that the winter gritting contract continues on a lawful basis until its expiry in May 2022. Considering the situation in 2021-22 in the round, notwithstanding the initial procurement errors, it is the case that:
- Non-compliance with standing orders (in this case the contract procedure rules) does not in itself invalidate a contract.
- Under EU procurement law there is an express power to declare a contract ineffective, which has not been utilised in this case. The normal time limit for such a declaration of ineffectiveness expired in late 2015.
- The council had the power to enter into the winter gritting contract - the issue in this case is not that the council was acting beyond its powers to provide a winter gritting service.”
The report goes on to consider the appropriateness of any further remedy or sanction on this point. It noted that:
- The council had already made a number of improvements to its procurement processes since 2015.
- Competitor bidders had the opportunity to bid for the new contract (effective from May 2022).
- Competitor bidders previously aggrieved by the 2015 process had a route to appeal the award of that contract.
- There could be significant cost to the council if it were to interrupt service provision.
- The council had acted throughout to fulfil its statutory responsibilities as a highways authority.
“Overall, the council has concluded that the winter gritting contract remains valid and it has ongoing private law obligations to the contractor,” the Director of Resources said.
The second procurement issue related to consultancy services. BDO had highlighted their legal advice that payments made to a specific consultancy in July 2016 (totalling £92,857) were effectively a modification to a contract which terminated on 30 June 2016, in breach of public procurement law.
The auditor said that the council should have estimated the value of the modification, combined this with the value of the previous contract and run a new procurement process. Failure to do so was unlawful under procurement law, BDO found. This breach related to one month preceding the 2017-18 accounting period.
The BDO report said: “While there is an argument that the items of expenditure, having been made pursuant to an unlawful contract award, would necessarily give rise to items contrary to law, we acknowledge that there are arguments that such expenditure, does not in itself give rise to an item of account contrary to law, given that the items of expenditure are one step removed from the contract award, and given the existence under procurement law of a specific route of challenge and remedy where a contract is awarded unlawfully. Such challenge has not happened here.
“Taking into account the costs that would be incurred in seeking a determinative declaration from the High Court that the expenditure was contrary to law, initial legal opinion on the strength of opposing arguments in this respect, the fact that no challenge to the [winter gritting] contract has been made by any party since its award and that the contract has only 1 year to run (at a cost of £809,770), leads us to conclude that taking such action would be a disproportionate audit response.”
BDO added that they were “satisfied that reporting in the terms that we have here is sufficient to raise the key issues and associated weaknesses to the council for them to address and, consequently, will not be taking any action under section 28 of the Local Audit and Accountability Act 2014”.
The Director of Resources’ report acknowledged: “As a result of identifying that the council did not follow public procurement law or our own Contract Procedures Rules in 2015 and 2016, BDO consider that these findings are indicative of significant weaknesses in the arrangements for partnership working and securing informed decision making.
“They will therefore qualify their conclusion on the use of resources for 2017-18 by stating that they are satisfied, in all significant respects, that the council put in place proper arrangements to secure economy, efficiency and effectiveness except for the matters reported.”
BDO made twelve recommendations which the Audit & Accounts Committee will consider at its meeting this week on behalf of the authority. These included that:
- All officers with responsibility for procurement and contracts should be reminded that all contracts must be included on the contract register.
- Spot checks of newly awarded contracts should be undertaken to confirm contract details are being added to the contract register on a timely basis and the that the information is accurate and complete.
- Mandatory training should be provided to all officers with responsibility for procurement on the requirements of the Public Contracting Regulations 2015 and the amendments that came into force following the end of the transition period and any subsequent public procurement legislation.
- Any monitoring officer approvals given for contracts exceeding four years in duration should be recorded in writing. Such approval should be held centrally by either the monitoring officer or procurement team.
- The contract procedure rules should be updated to ensure that the requirement to maintain formal documentation supporting the procurement process is embedded. “This could usefully be supported by the establishment of a records management and retention policy.”
The council's response to the recommendations and actions being taken by it are set out in the Director of Resources’ report.
The report also noted amongst other things that there had been general improvements in process over recent years, including that the Head of Procurement now reviews all committee reports – which was said to be “a useful device for identifying issues and procurement risks” – and the strategic procurement team had returned to the council in December 2020 from the shared arrangements in LGSS, meaning that Cambridgeshire had a dedicated procurement team reporting to the council’s Section 151 Officer for the first time since 2010.