Legal briefing | Competition |

COVID-19: Procurement by public bodies

Overview

This briefing was updated on 29 April 2020.

How far does the current COVID-19 crisis justify contracting authorities departing from the normal procedures under EU and UK public procurement rules?  What measures should contracting authorities be taking during the current crisis to ensure service continuity for existing contracts? In this briefing, we look at recent UK government guidance and highlight the key points, both for suppliers and contracting authorities.

Why are the public procurement rules potentially problematic in the current crisis?

Procurement by public bodies (or "contracting authorities") in the UK is subject to the regime set out in the Public Contracts Regulations 2015 ("PCRs") and related statutory instruments, which among other things seek to ensure that in procuring goods, services and works contracting authorities adhere to fair and reasonable timetables and procedures and encourage open competition.

The COVID-19 pandemic is already requiring, and will continue to require, contracting authorities to procure products and services from the private sector with unprecedented urgency.  Indeed, some examples of urgent UK Government COVID-19 related procurements have been discussed in the press over recent weeks, including the award of certain contracts for the manufacture of ventilators.

Furthermore, the COVID-19 pandemic may mean that goods or services can no longer be provided in the same way – or indeed at all – under existing contracts, which may ordinarily entitle contracting authorities to withhold payment for such goods or services. UK Government advice to contracting authorities is that contract requirements should be varied to enable (i) insofar as possible, supply to take a different form during the current crisis, and/or (ii) continued payments to suppliers or supply chains considered 'at risk' to ensure continuity of supply both during and after the crisis.

Failing to properly navigate their statutory requirements while doing so could give rise to a number of issues for contracting authorities.  For example, the procurement or contract variation could be challenged by suppliers not awarded the contract on the basis that, had they been allowed to tender (either originally or for the newly varied contract), they could well have won the business.  Such challenges are increasingly common; a recent example is the successful challenge by Eurotunnel to the UK Government's 2018 decision to award a contract for extra cross-channel freight capacity without following the normal public procurement procedures.

In recognition of these issues, the UK Government has published two sets of guidance on how public procurement rules should be applied in such circumstances.  The key points of this guidance are summarised below.

What does the new UK government guidance say?

On 18 March 2020 the UK Cabinet Office published a policy note providing guidance to contracting authorities and suppliers as to the options already available to contracting authorities under the PCRs in circumstances where there is an urgent need to procure goods, services or works due to COVID-19 (the "Procurement Guidance").

The Procurement Guidance both highlights some of the less commonly used procurement procedures that are intended for exceptional circumstances such as these, and reminds authorities of the more standard procedural mechanisms under the PCRs that may assist contracting authorities in the current circumstances to obtain the supplies they need in as short timeframes as possible. It also emphasises in each case the need for contracting authorities to keep proper written records of all decisions and actions taken on individual contracts, to mitigate against the risk of a successful legal challenge, and to publish the relevant notices in the the Official Journal of the European Union (OJEU) as required under the PCRs

OVERVIEW OF THE PROCUREMENT GUIDANCE

The Procurement Guidance highlights a number of options available to contracting authorities where they are concerned that full compliance with the normal public procurement rules will be difficult or impossible in current circumstances.  These include the following (which are discussed in more detail in the remaining sections of this briefing):

  • Direct award of the contract (without prior advertisement or holding a competitive tender process) due to extreme urgency

  • Direct award due to absence of competition or protection of exclusive rights

  • Award using accelerated timescales available under the rules in urgent cases

  • Extending or modifying an existing contract

It also reminds contracting authorities of other procedures available under the rules which may assist, such as the so-called "light touch" regime applicable to certain categories of contract and the possibility of organising the procurement as a "call-off" under an existing framework agreement or dynamic purchasing system. 

These procedures, as well as key issues for bidders to keep in mind, are explained below in Sections 3-8.

The UK Cabinet Office has also issued additional guidance for contracting authorities regarding payment of suppliers to ensure service continuity during and after the COVID-19 pandemic (the "Supplier Payment Guidance"). The key points of this guidance are summarised in Section 9 below.

Direct award due to reasons of extreme urgency

Normally, the public procurement rules require contracting authorities to advertise the existence of the contract opportunity in advance and to conduct a competitive tender, with timescales prescribed by the rules.  For example, in principle, a contracting authority using the "Restricted Procedure" must allow 30 days for bidders to respond to the Pre-Qualification Questionnaire and a further 30 days to submit tenders.  Clearly, where the contract needs to be put in place as a matter of urgency, such a timetable may not be appropriate (and although the rules allow for shorter timescales in some cases, these may still result in a tender process that is simply too long to be of any assistance).

Making a direct award involves dispensing with advertisement and competitive tender altogether.  Contracting authorities may make a direct award under Regulation 32(2)(c) PCRs where, for reasons of extreme urgency brought about by events unforeseeable by the contracting authority, the time limits for the open procedure, restricted procedure or competitive procedure with negotiation cannot be complied with.

DIRECT AWARD FOR REASONS OF URGENCY: KEY POINTS

The Guidance emphasises the following points regarding direct award for reasons of urgency in the context of Covid-19:

  • There must be genuine reasons for the extreme urgency (e.g. public health risks, loss of existing provision at short notice, or a genuine emergency rather than simply planning for one);

  • The events that have led to the need for extreme urgency must have been unforeseeable (i.e. not something the contracting authority should have predicted or already knew ought to be done);

  • It must be impossible to comply with the usual tender timescales (including other accelerated forms of procedure as otherwise described in this briefing);

  • The situation must not be attributable to the contracting authority (e.g. it must not have done anything or failed to do anything which caused or contributed to the need for extreme urgency, such as delaying or failing to do something in time).

The Guidance emphasises that in using this procedure contracting authorities must be able to prove (by provision of relevant detailed written evidence) that the circumstances justifying use of this procedure have been met, and continue to assess as time goes on whether the conditions outlined above remain applicable (in particular as what is initially unforeseeable may become foreseeable over time).

Direct award due to absence of competition or protection of exclusive rights

The Procurement Guidance explains that a contracting authority may also make a direct award (without a tender process) under Regulation 32(2)(b) PCRs where the works, goods or services needed to respond to COVID-19 can only be supplied by a particular supplier by reason of either (i) competition being absent for technical reasons (e.g. there is only one supplier with the expertise to do the work, produce the product or with capacity to complete on the scale required), or (ii) the protection of exclusive rights, including intellectual property rights (e.g. the supplier owns or has the exclusive right to exploit those rights).

The Procurement Guidance emphasises, however, that a contracting authority should only use this procedure in circumstances where:

  • there is no reasonable alternative or substitute available; and

  • the authority is not doing something which artificially narrows down the scope of the requirement – e.g. over-specifying the requirements.

Accelerated timescales for standard procurement procedures due to urgency

The Procurement Guidance highlights that Regulations 27(5), 28(10) and 29(10) of the PCRs provide the ability for contracting authorities to reduce the minimum timescales required for the open procedure, the restricted procedure and the competitive procedure with negotiation in circumstances where a state of urgency renders the standard timescales impracticable.  Under these reduced timescales, authorities could, for example, require tenders to be submitted within 15 days of the call for tenders.

To use these accelerated timescales there is no express requirement for the situation to be unforeseeable or not attributable to the contracting authority.  However, the state of urgency must be duly substantiated by the contracting authority.

Extending or modifying an existing contract

Extending or modifying an existing contract may be an attractive option for a contracting authority in the current crisis because – like direct award – it potentially avoids the need for advertisement or a competitive tender process altogether.  However, whilst Regulation 72 PCRs permits certain modifications (including extensions) to existing contracts, this is subject to a number of important constraints/conditions, which are highlighted in the Procurement Guidance.

MODIFYING OR EXTENDING AN EXISTING CONTRACT: KEY POINTS

The Guidance emphasises the following points regarding modifications or extensions of existing contracts in the context of COVID-19:

  • The need for modification must have been brought about by unforeseen circumstances: The authority must be able to demonstrate that the decision to extend or modify the particular contract(s) was related to the COVID-19 outbreak with reference to specific facts, e.g. that staff are diverted by procuring urgent requirements to deal with COVID-19 consequences, or that staff are off sick so they cannot complete a new procurement exercise;

  • The modification must not alter the overall nature of the contract, and any increase in the price of the contract does not exceed 50% of the value of the original contract or framework agreement;

  • Any extension or other modification must be limited to what is absolutely necessary to address the unforeseeable circumstance. The Guidance advises that it may be also prudent to run a procurement for longer term supply alongside the modification.

Other options available under the PCRs

The Procurement Guidance also reminds contracting authorities of certain other mechanisms by which they may be able to obtain supply of products or services within shorter timescales, including:

  • Use of the "Light Touch Regime" under Regulations 74-77 PCRs: For specific health and social care related services, while contracting authorities are required to advertise such contracts in certain ways, they are free to use any process or procedure (not confined to the standard procurement procedures) and set their own timescales, provided that they are reasonable and proportionate; and

  • Calling off from an existing framework agreement or dynamic purchasing system (DPS): Certain contracting authorities may be able to 'call off' supplies under a framework agreement (or DPS) already entered into by a central purchasing body (e.g. the Crown Commercial Service or NHS trusts), broadly provided that the authority was specifically identified in the original tender documentation and the products/services in question fall within the scope of the framework agreement or DPS. Call-offs entail running a mini-competition (rather than a full tender process), under which the minimum time for receipt of tenders is 10 days.

What do private sector bidders for urgent public contracts need to be aware of?

It is likely that, in order to deal with the consequences of the COVID-19 pandemic as a matter of urgency, public authorities will make direct awards of contracts without any advertisement or tender process (as would normally be required under the public procurement rules).  The key risk in this situation is that the procurement is challenged by another potential supplier.  If successful, that challenge could result in a court declaring the contract to be ineffective – which could be particularly damaging if, for example, the contract was only profitable if it lasted its full term.  However, it is possible to agree in advance with public authorities what the consequences will be if a contract is declared ineffective (including who will bear the costs).  Such agreements can offer a degree of protection against the risk of entering into a contract with a public authority based on a direct award.  We would also recommend that companies obtain their own independent assessment of whether the authority is justified in making a direct award – because, as explained above, the Procurement Guidance makes it clear that COVID-19 does not give public authorities carte blanche to do as they please on matters covered by the public procurement rules.

Measures contracting authorities should take to ensure service continuity for existing contracts during and after the COVID-19 pandemic

As a result of the COVID-19 pandemic the supply of goods or services to contracting authorities under existing contracts could in many cases be reduced or stopped entirely due to supply chain issues, a drop in demand or incapacity to fulfil the contract due to UK Government restrictions in place, for example. The Supplier Payment Guidance provides guidance on the steps contracting authorities should take vis-à-vis their suppliers with a view to ensuring service continuity during and after the COVID-19 pandemic.

  • Variation to contract requirements: The Supplier Payment Guidance advises that, wherever possible, contracting authorities should seek to re-deploy the capacity of those suppliers to other areas of need or otherwise make changes to contract requirements, with a view to avoiding complete suspension of performance under the contract (e.g. as a result of triggering a force majeure clause). Such variations to contract requirements should be assessed on a case-by-case basis, and might include changes to delivery locations, frequency and timing of delivery, targets and performance indicators etc.

  • Continued payment to suppliers:

    • The Supplier Payment Guidance also advises that contracting authorities continue to pay 'at risk' suppliers (to be defined by the contracting authority) as quickly as possible to maintain cash flow, preserve supply chains, protect jobs and ensure business continuity when supply can resume. To this end, contracting authorities are recommended to confirm with their at risk suppliers that they will continue to pay until at least the end of June. They should, however, carefully consider the extent of payments to be made to suppliers who are underperforming and subject to an existing improvement plan.

    • This may entail accelerating payment sooner than the 30 day limit set out in the PCRs, paying disputed invoices (with a view to reconciling later) or asking suppliers to invoice more frequently (e.g. weekly rather than monthly), and the Supplier Payment Guidance recommends that high value invoices where suppliers are reliant on a supply chain should be prioritised. Contracting authorities could also consider making changes to payment terms (e.g. interim payments, or payment in advance).

  • Approach to varying contracts: The Supplier Payment Guidance notes that changes to contract requirements or payment terms can be made on the basis of the provisions set out in Regulation 72 PCRs – as described under Section 6 above. Any changes should be documented as being specific to the COVID-19 pandemic, and should be time limited or subject to a review mechanism, with the contracting authority having the power to decide when normal supply should resume.

  • Transparency: The Supplier Payment Guidance also advises that suppliers receiving public funds on this basis during this period must agree to operate on an ‘open book’ basis. This means that suppliers must make available to the contracting authority any financial data as may be required to demonstrate payments received have been used in the manner intended – e.g. that staff and supply chains have been paid in a timely manner. To this end, the Supplier Payment Guidance notes the need for record keeping by both contracting authorities and suppliers. It also emphasises that suppliers should not expect to make profits on elements of a contract that are undelivered during this period, and that all suppliers are expected to operate with transparency and integrity.

Although these measures will no doubt be welcomed by suppliers as offering helpful additional flexibility, they are very much at the discretion of contracting authorities. Suppliers should not therefore assume that contracting authorities will offer these types of relief unprompted; in some cases, suppliers may need to persuade their customers that such steps are justified under the Supplier Payment Guidance.

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