© Guardian design team
The Guardian has reported that the UK ‘state bodies have awarded at least 177 contracts worth £1.1bn to commercial firms in response to the Covid-19 pandemic. Of those, 115 contracts – with a total value of just over £1bn – were awarded under the fast-track rules bypassing competitive tenders. They include two contracts worth more than £200m, both awarded by Whitehall departments.’
This has raised concerns, such as those voiced by a spokesperson for Transparency International UK, who said ‘“The alarming number of contracts seemingly awarded without any competition risks setting a dangerous precedent which may harm the public interest and reduce confidence,” he said. “When lucrative deals are awarded with no competitive tender and away from public scrutiny, taxpayer money could easily be wasted on overpriced equipment or substandard services.”’
There are two aspects of these concerns. One seems to be the possibility of this ‘deregulated’ procurement constituting a precedent and, implicitly, creating scope for more deregulated procurement once the pandemic is over; while the other aspect relates to the transparency (not) being given to the directly awarded contracts. In my view, while the first aspect is largely unwarranted, the second deserves some serious thought and closer scrutiny. Beyond that, I think the piece highlights a more fundamental issue related to the UK Government’s excessive reliance on consultancy firms to make up for the depleted capacity of its civil service after years of austerity, which is a much more worrying long-term trend. I touch upon these three issues in turn below.
‘Extremely urgent’ procurement as a precedent or a wedge towards more deregulated procurement post-pandemic?
It is clear that the deactivation of public procurement rules to free up public buyers to fulfil the extremely urgent needs arising from the pandemic sits uncomfortably with the standard system of checks and balances usually in place to ensure probity and value for money in the expenditure of public funds. However, the negative governance impacts of deregulated direct procurement are a collateral effect of the need to ensure that the procurement function meets its most basic goal: to make sure the public sector has the material means to discharge its duties in the public interest. It would be unacceptable for procurement rules to get in the way of, in this case, the purchasing of life-saving kit and equipment, as the scale of values implicit in our democratic societies surely ranks higher protecting lives than ensuring probity (where these are incompatible, at least temporarily).
It is also worth stressing that the deactivation of most procurement rules in the face of extreme urgency is not a ‘blank cheque’. This is for clear reasons, embedded in the scape clause of reg.32(2)(c) of the Public Contracts Regulations 2015 (and Art 32(2)(c) of Dir 2014/24/EU, which it transposes). First and foremost, this exemption from standard rules is clearly exceptional and needs to be narrowly construed. It can also only cover procurement that is directly linked to the extremely urgent need, and the scope of the directly awarded contract needs to be proportionate to that need (for very clear interpretive guidance, see the Commission’s COVID-19 procurement notice discussed here).
There is very limited available public information but, on the basis of The Guardian’s piece, at first sight, there does not seem to be a reason for concern regarding the object of the contracts directly awarded (see side graph), as all of them concern what can legitimately be claimed to constitute extremely urgent supplies to tackle the immediate aftermath of the pandemic and the ensuing lockdown. There is thus no indication that the exemption is used beyond its proper scope—though, of course, an analysis of proportionality would require more information.
There can be more questions on the value of the contracts, given that some of them have rather large total values. However, this should be put into perspective by recognising that, for example the contracts for children meals, food boxes or test materials and test services are bound to include millions of units, which will then yield much smaller prices that can reasonably be expected to be roughly at market prices (bearing also in mind the current distortions to the markets’ ability to effectively act as price setting mechanisms).
Take the example of the children’s meals vouchers, on which the piece says: ‘The largest contract, worth up to £234m, was handed by the Department for Education to a French-owned firm, Edenred, to feed more than a million pupils eligible for free school meals. Edenred has since been accused of “woeful” preparation which caused children to go hungry and humiliated parents.’
The additional linked article provides more details: ‘The contract runs for up to three months, indicating that the Department for Education expected the firm – which has fewer than 150 staff – to distribute the £15-a-week vouchers to the 1.3 million children in England eligible for free school meals.’ It is remarkable that 12 weeks’ worth of £15 vouchers for 1.3 million children amounts exactly to £234 million. This raises additional questions on how does the provider obtain its commercial margin and whether children will be receiving vouchers worth even less than the £15/week—which is an incredibly low value of economic support, certainly not in keeping with the general wealth of the UK.
Of course, much more pricing and commercial margin analysis will be required once more information is available — and this should be undertaken by the National Audit Office at the first possible opportunity — but whether these are lucrative deals remains to be seen and, at any rate, the availability of the extreme urgency procurement exemption will not last long.
A related, but separate issue concerns the effective capability and the level of readiness of the companies directly awarded contracts. Here, the reports of the initial problems encountered by Edenred (website collapse, long waits for the delivery of the vouchers and rejection at the supermarket till) are reminiscent of the issues faced in other contracts, such as Deloitte’s strongly criticised role in the coordination of PPE purchases. Differently from the inability of some of the awardees of contracts for ventilators to deliver, which in my view determined the illegality of the direct awards, the limited capability and lack of readiness of the awardees of some of these other contracts may not be an illegality ground, but is still a very worrying dimension, not only of COVID-19 related procurement. I will come back to that in the final part of this blog.
Breach of the transparency requirements associated to extremely urgent procurement
From a public governance perspective, in my opinion, the way in which the UK Government is failing to meet the transparency requirements associated to extremely urgent procurement is much more worrying than the issue of the total value of the contracts, despite the eye watering headline figure of more than £1 billion.
Despite the fact that some information on these contracts must be publicly available—as ‘The Guardian’s research was based on public databases in the UK and the EU, and aided by information gathered by the research organisation Tussell, which said it had noticed a surge in work awarded without competition in recent weeks’—there are serious concerns about the level of transparency given to these contracts and, more importantly, whether it will be possible to engage in meaningful ex post oversight and effective accountability by looking at the documentation supporting the decisions to award these contracts.
Indeed, The Guardian raises that ‘[t]he contracts reviewed … may only constitute a portion of those awarded without a competitive tender for Covid-19 work. The government is declining to release a full list, despite guidelines which state any contract awarded using emergency powers should be published within 30 days.’
On that point, the piece refers to the Cabinet Office Public Procurement Notice 01/20 (on which see here), which is very clear that contracting authorities ‘should ensure [they] keep proper records of decisions and actions on individual contracts, as this could mitigate against the risk of a successful legal challenge. If [they] make a direct award, [they] should publish a contract award notice (regulation 50) within 30 days of awarding the contract.’
This not only applies where ‘new’ direct contracts are awarded, but also where existing contracts are modified to add new services (or supplies) within their scope. This was also explicitly covered in PPN 1/20, which stressed that ‘[c]ontracting authorities should keep a written justification …, including limiting any extension or other modification to what is absolutely necessary to address the unforeseeable circumstance. This justification should demonstrate that [their] decision to extend or modify the particular contract(s) was related to the COVID-19 outbreak with reference to specific facts, eg [their] staff are diverted by procuring urgent requirements to deal with COVID-19 consequences, or [their] staff are off sick so they cannot complete a new procurement exercise. [They] should publish the modification by way of an OJEU notice to say [they] have relied on regulation 72(1)(c).’ The added difficulty here is that there is no set deadline for the publication of this type of notice. However, there are good reasons to require timely publication and it also seems reasonable to expect compliance with a similar timeframe to the 30 days required for new contracts.
The UK Government and all relevant departments are generally and systemically failing to meet these requirements. This is rather clearly the case of, for example, NHSX’s contract modification/s in relation to the UK COVID-19 dashboard (see here), as no contract modification notice has been published in the Tenders Electronic Daily (TED), to the best of my knowledge, at the time of writing. More generally, The Guardian’s piece reports that a spokesperson for the department of health said that 'publication of contract information is being carried out as quickly as possible in line with government transparency guidelines’ (emphasis added).
Despite the seemingly lenient language in PPN 1/20, the fact that these notices are not being published in a timely manner—and within 30 days from award for new contracts—is a breach of the applicable procurement rules and creates legal risks for the UK Government (though, in practical terms, they are likely to be seen as small because the standing and time limits to challenge, and the available remedies are restricted—on which see a forthcoming post in this blog).
In my view, this constitutes a major infringement by the UK Government and the relevant departments by failing to meet the extremely minimum requirements that procurement law imposes in the context of an extremely urgent situation. This is not only worrying in itself, but also as an indication that there may be a risk that the relevant information is not only not being published, but also not being properly documented and subjected to adequate record-keeping.
Just to be clear, there is no discretionality involved in the decision whether to publish the contract award/modification notice and most of its content is also predetermined, although there are complex clauses aimed at protecting commercially sensitive and other confidential information that could be at play. Remarkably, for ‘new’ contracts awarded under the extreme urgency procurement exemption, reg.50 PCR2015 (and Art 50 Dir 2014/24/EU, in relation to Annex V, part D thereof) requires that the contract award notice ‘in the case of negotiated procedure without prior publication, [includes its] justification.’
Relatedly, reg.84 PCR2015 (and Art 84 Dir 2014/24/EU) establishes the obligation to write up and keep an individual procurement report for each direct award, including in particular ‘for negotiated procedures without prior publication, the circumstances referred to in regulation 32 which justify the use of this procedure’ (84(1)(f)), as well as ‘the name of the successful tenderer and the reasons why its tender was selected’ (84(1)(d)) and, not least important, ‘where applicable, conflicts of interests detected and subsequent measures taken’ (84(1)(i)).
These reports, and the associated notices (which will raise public awareness of their existence) will (or, perhaps, ought to) be the basis for effective ex post oversight and effective accountability of the UK Government and its departments. If the current lack of transparency by means of the relevant notices is an indication of a lack of proper documentation and record-keeping, these would be very bad news for any prospects of a meaningful post-crisis public inquiry into the management of these extraordinary amounts of public funds spent through unregulated procurement. And, in my opinion, should lead to an investigation of the reasons for any such lack of documentation under public law (and perhaps, even criminal law) rules, which discussion exceeds this post.
Excessive reliance on consultancy firms, not only under extreme urgency
The final point worth considering is a more fundamental issue related to the UK Government’s excessive reliance on consultancy firms to make up for the depleted capacity of its civil service after years of austerity, which is a much more worrying long-term trend.
The information on the Government’s reaction to COVID-19 that is slowly emerging is starting to paint a picture of rather extreme outsourcing of strategic and fundamental coordination and operational tasks to consultancy firms. There can be several reasons for that but, in my view and on the basis of the longer term trends I have been observing in UK outsourcing practice, there are two that are probably quite determinative of this approach.
First, the UK public sector, including but not only its civil service, has been constantly eroded and reduced to bare bones capacity, which makes it impossible for it to effectively take over such large tasks at short or no notice. This requires the Government to ‘buy capacity’ where available and almost regardless of the true suitability (ie expertise) or level of readiness of that capability, as *some* capability may be better than none. Moreover, the Government is probably buying capacity without even being able to clearly specify what needs to be done, which would put the relevant services contracts on a ‘best effort’ basis, as the engaged consultant would need to both design and implement the necessary solution. In that context, whether the consultant had or not the relevant expertise and capability can be very difficult to assess, not least because most of the outsourced tasks will be unique and not have a clear precedent against which to benchmark the required expertise and experience. In that context, size matters. As also probably does a successful consultant’s ability to package ill-defined goals into politically-digestible soundbites.
Second, and linked to the above, there seems to be very limited ability (or willingness) on the Government’s commercial function to scrutinise and challenge the promises made by outsourcing firms. The problems in the implementation of the outsourced contracts can in part derive from the complexity of the task and the inexistence of previous preparations—which, in fairness, should have been undertaken by the Government (or its pre-appointed contractors), not by those called upon to plug the hole)—but they are also likely to result from the fact that the consultancy firms did not have the necessary expertise or organisation in place and are likely just developing it as they engage in the provision of the services (or, more plainly, winging it). The extent to which this can lead to a satisfactory outcome in the medium to long-term is debatable, as well as who should shoulder the consultants’ learning costs. However, in cases of acute and extremely urgent needs, this is hardly conducive not only to value for money but, more generally, to an acceptable level of stewardship of the public interest.
The lack of sufficient capacity to directly take on strategic coordination and operational tasks, compounded by the limited capacity to scrutinise the promises made by consultancy companies, is a recipe for disaster. And this is a long-term trend that is particularly difficult to revert, as it generates a self-fulfilling prophecy. I do not hold high hopes for change, as previous recent crises (eg Carillion’s demise) have not really led to significant, meaningful change. However, this is something that will require further research and debate post-crisis. Having a proper and comprehensive public inquiry into all this would be an adequate starting point.