Regulaton & Policy
Edenred Loses in UK Supreme Court – Extension to NS&I Atos Contract Was Legal

There was an important ruling this month in the UK’s Supreme Court which is likely to be quoted as EU procurement case law on many occasions in the future. (You can read the whole judgement here). It also provides a good route for contracting authorities to build flexibility into their contracts and minimise the number of further procurement exercises that they need to run!

The UK government introduced a new scheme for providing parents with tax-free childcare. The Ministry of Finance (Treasury) and the Tax Ministry (HMRC) decided that a government owned organisation called NS&I (National Savings and Investments), which offers savings schemes and Premium Bonds, would deliver the new scheme of tax-free childcare (TFC) by providing and administering childcare accounts and supporting services. The arrangements between HMRC and NS&I were to be set out in a memorandum of understanding. Now all of the NS&I operational services were already run on an outsourced service basis by Atos, so NS&I proposed to amend its contract with Atos to include those services. That would all happen without any public procurement process around this work.

Edenred were an incumbent supplier to employers under the old scheme for childcare accounts, which was devolved rather than centrally run. The firm felt that EU procurement law should have led to a new tender process (rather than the direct award to Atos) and started a legal challenge. The High Court dismissed the claim, as did the Court of Appeal who dismissed that challenge in March. Edenred continued however to the UK Supreme Court, who heard the application in May and delivered their verdict earlier this month.

Edenred argued that the proposed amendments to the Atos contract were substantial because they extended the scope of the contract considerably, encompassing services not initially covered. But unfortunately for them, this argument did not succeed. The original contract covered operational services to support NS&I’s existing functions and the expansion of the B2B services. But one key point was the wording in the OJEU advertisement, which included this key passage.

“In addition NS&I now delivers similar operational services (so called B2B services) to other public sector organisations. We intend to expand this B2B service during the lifetime of the contract to deliver to other organisations, potentially resulting in significant growth of the outsourced operational services. NS&I intends to structure the contract so that it may be used by other central government departments (including their executive agencies and non-departmental public bodies) and by local authorities. NS&I also intends to permit the contractor to make the services provided under the contract available to private sector entities provided that this does not affect the provision of service to NS&I”.

As the Supreme Court judgement said; “… the procurement process and the contract envisaged the expansion of NS&I’s business and required the outsource partner to provide the operational services to achieve that expansion. That was the object of the contract; it was clearly stated in the OJEU notice”.

If the original procurement documents envisage that the contracted services may be modified or extended, and require the bidders to commit to them and have the resources to undertake such services, then such changes to the contract should not be prohibited, the court said.

“Were it otherwise, it is difficult to see how a Government department or other public body could outsource services that were essential to support its own operations and accommodate the occurrence of events and the changes of policy that are part of public life”.

The court did acknowledge the danger that contracting authorities could use this sort of mechanism to avoid the need for competition by allowing for future procurement of services unspecified at the time of original advertisement.

But, “whether or not this is so, the focus must be on the particular contract”. The specific procurement documents must be considered to see how the services were described when the contract was tendered. In this case the Law Lords decided this was reasonably within the original intent, the boundaries of the contract and the original procurement process.

However, whether this was a commercially fair and reasonable way for the government to behave is perhaps a different question. It took work away from an open market, and a range of providers. Without the firm having to go through a competitive process, it put more revenue and profit into the hands of Atos, one of the giants of the outsourcing world and one of those UK government suppliers who at other times have been criticised for their performance. (French owned as well, perhaps an irony given the UK is supposed to be amongst the more “anti-European” countries!)

But there is a difference between that issue and the letter of EU procurement law. Looking at the detail, particularly the way the original NS&I contract was positioned and let, it is not surprising that Edenred failed, even if the whole process does leave a slightly bad taste in the mouth.

Serious congratulations however to the NS&I procurement team who let the contract with Atos in the first place. The genuinely clever way in which they framed the need for future flexibility really paid off here! And it provides a model for other buyers letting services contracts where future contract modification may be desired. If done carefully, the original procurement can give you considerable scope for future changes.