Getting it right first time

Stuart-Cairns Stuart Cairns emphasises the need for good, early planning in procurement exercises.

Interest in public procurement has never been greater. Once a minority interest, it has now become front page news. In no small part, this is due to a series of high profile challenges which have brought how, and on what, government spends its money to the forefront of peoples minds.

The most obvious recent example of how procurement can hit the headlines is, of course, the West Coast Mainline challenge at the end of last year. As you will be aware, the Department for Transport’s lengthy and expensive procurement process for the 13-year contract to operate rail services down England’s west coast was cancelled after the incumbent contractor (Virgin) launched a judicial review.

It represented an embarrassing and costly mistake for the department, which admitted “significant technical flaws” in the procurement process. No contracting authority wants to end up in a similar position, not least because of the possibility, however remote, of having to reimburse bidders for their bid costs (estimated to amount to £40 million in the West Coast Mainline case).

An independent report into how the Department ended up where it did was published in December 2012. The report identified a series of errors, which related in part to “poor planning and preparation”.

Locally, our various tiers of government certainly haven’t been immune to criticism in respect of how they run their procurement practices. For example, the Northern Ireland Audit Office has very publicly criticised, amongst others, bodies such as Northern Ireland Water, the Northern Ireland Housing Executive and, most recently, the Department of Culture, Arts and Leisure for the poor planning which led to seven multi-million pound building projects going over budget.

Flaws in planning or inadequate preparation don’t just impact contracting authorities’ budgets and create contractual issues. They can also give rise to significant procurement law issues. As a general rule, any changes to a publicly procured contract, which alter the economic balance of the original contract or which expand the scope of the original contract, are likely to constitute ‘material changes’. The rationale for this is that the contract is no longer the same as the one originally advertised in the Official Journal of the European Union (OJEU). It has changed so materially that it has become a different contract. Consequently, in procurement law terms, it ought to have been the subject of a new OJEU advertisement and a new procurement process, rather than being automatically carried on by the existing contractor.

If a contract is challenged on the basis of a material change, the consequences for a contracting authority can be extreme: damages claims, a financial penalty, and even a declaration of ineffectiveness (which renders the contract null and void). Many of these risks can be mitigated if a contracting authority invests sufficient time upfront in properly planning the procurement. Commercial due diligence and proper (and realistic) project scoping is a major step in mitigating procurement risk. The rush to the OJEU, whilst tempting, should be avoided at all costs.

Proper scoping, pre-OJEU, is critical. So too is planning the procurement process itself. In the West Coast Mainline procurement, the Department of Transport’s methodology for evaluating the risk associated with bidders’ guarantees was both flawed and inconsistent. There are numerous other cases where similar problems with the evaluation process have left a contracting authority exposed and having to expend significant time, effort and money dealing with the fall-out from inadequate preparation. This is not to mention the potential liability for damages and the costs (in terms of both time and money) involved if the process has to be re-run. In a climate where the public sector is under such pressure to cut costs, it really does pay to prepare.

Pinsent-Masons-433 The West Coast Mainline case is a salutary lesson for contracting authorities of the importance of investing the time, pre-OJEU, in going through the process step by step, deciding exactly what the process will entail, how bids will be evaluated and the award criteria and methodologies to be applied. No authority wants to be headline news when it gets a procurement process badly wrong, and the only sure way to avoid this is to get it right first time round.

Stuart Cairns leads Pinsent Masons’ public procurement team. The team is one of only seven in the UK to be rated ‘tier 1’ by Chambers Guide to the Legal Profession. Stuart is currently advising on major schemes across the UK and beyond and can be contacted by email stuart.cairns@pinsentmasons.com

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