UK Government (NHSX) modified existing contracts to buy additional data services to react to COVID-19 -- 'The greater includes the lesser' when it comes to extreme urgency procurement?

COVID-19 related procurement is the gift that keeps on giving (at least for procurement professionals and aficionados). Dr Pedro Telles has now found another emerging procurement controversy concerning the modification of pre-existing public contracts to award ‘additional services’ to mine and analyse data to inform the UK Government’s response to the pandemic—as reported by the Guardian (12 Apr 2020) and, in more detail from a procurement perspective, by the Byline Times (22 Apr 2020) . I would expect Pedro to blog about it soon, so keep an eye on telles.eu.

In short—and setting aside the controversy that surrounds the links of the awardees with political figures in the UK and the US, which is nonetheless also rather worrying—the situation is that, in the context of boosting the UK Government’s access to data science analysis as an input to its broader decision-making on pandemic response, NHSX modified a pre-existing contract with Faculty, ‘which had a pre-existing contract with other companies to help build a £250 million artificial intelligence lab for the NHSX.’

This is another procurement exercise where there is very limited public information, so my comments are based on the Byline story taken at face value. Whether entirely accurate or not, I think the story raises an important set of questions on the limits of the extreme urgency exemption from procurement rules and its interaction with the regulation of existing contracts.

The questions that immediately spring to mind are: why would NHSX modify an existing contract, and what are the implications of the contractual expansion? Given the extreme urgency in gaining better insights on the evolution of the COVID-19 pandemic, which seems to me beyond doubt, would it not have been possible (as well as neater and easier to oversee and manage ex post) to directly award a new contract? Are there any particular implications of the choice to modify rather than award a separate contract?

Given the limited public information, all I can do at this stage is speculate. However, I think that some of the unanswered questions below should be added to the already lengthy list that should form the core of a post-crisis public inquiry into COVID-19 related procurement.

Rules on modification and extreme urgency

The modification of the NHSX contract would have been justified on the basis of reg. 72 of the Public Contracts Regulations 2015, which transposes Art. 72 of Directive 2014/24/EU. In particular, the Byline piece refers to reg.72(1)(b) and (c) PCR2015, both of which allow for a contractual modification of up to 50% of the value of the original contract. Both rules simply transpose the equivalent rules of Art 72 Dir 2014/24/EU and need to be interpreted in the same manner.

Awarding additional services in the way that NHSX seems to have done it boggles the mind, mainly because the award of the additional services to mine and analyse COVID-19 related data is unlikely to be covered by either of the two rules—which need to be interpreted restrictively [for details, see A Sanchez-Graells, Public Procurement and the EU Competition Rules (2nd ed, Hart 2015) 429 ff].

Reg. 72(1)(b) PCR2015 allows for a contract to be extended to include additional services that ‘have become necessary and were not included in the initial procurement, where a change of contractor—(i) cannot be made for economic or technical reasons such as requirements of interchangeability or interoperability with existing equipment, services or installations procured under the initial procurement, and (ii) would cause significant inconvenience or substantial duplication of costs for the contracting authority’.

To put it simply, reg. 72(1)(b) PCR2015 contains a rule concerning contract modifications for ‘more of the same’ services under the relevant contract. This is also the clear indication based on recital (108) of Directive 2014/24/EU, which states that: ‘Contracting authorities may be faced with situations where additional works, supplies or services become necessary; in such cases a modification of the initial contract without a new procurement procedure may be justified, in particular where the additional deliveries are intended either as a partial replacements or as the extension of existing services, supplies or installations where a change of supplier would oblige the contracting authority to acquire material, works or services having different technical characteristics which would result in incompatibility or disproportionate technical difficulties in operation and maintenance.’

Reg. 72(1)(c) PCR2015 allows for a non-competed contractual modification to add services to an existing contract where ‘(i) the need for modification has been brought about by circumstances which a diligent contracting authority could not have foreseen; [and] (ii) the modification does not alter the overall nature of the contract’.

Reg. 72(1)(c) PCR2015 contains a rule that gets close to the general possibility to award contracts without competition (under reg.32(2)(c) PCR2015). However, this possibility is subjected to the important constraint that it cannot be used to procure something different from the object of the original contract. This is also rather clear in recital (109) of Directive 2014/24/EU: ‘Contracting authorities can be faced with external circumstances that they could not foresee when they awarded the contract, in particular when the performance of the contract covers a long period. In this case, a certain degree of flexibility is needed to adapt the contract to those circumstances without a new procurement procedure. The notion of unforeseeable circumstances refers to circumstances that could not have been predicted despite reasonably diligent preparation of the initial award by the contracting authority, taking into account its available means, the nature and characteristics of the specific project, good practice in the field in question and the need to ensure an appropriate relationship between the resources spent in preparing the award and its foreseeable value. However, this cannot apply in cases where a modification results in an alteration of the nature of the overall procurement, for instance by replacing the works, supplies or services to be procured by something different or by fundamentally changing the type of procurement since, in such a situation, a hypothetical influence on the outcome may be assumed’ (emphasis added).

We are thus in a situation where the legality of the contractual modification will crucially depend on the object of the initial contract. However, it seems really difficult to see how what NHSX describes as a bespoke data store and dashboard to monitor the evolution of the COVID-19 pandemic (see eg this blog) can fit within the remit or previous contracts, not least because it is meant to ‘self-destroy’ after the pandemic: ‘When the pandemic abates and the outbreak is contained, we will close the Covid-19 datastore. The Data Processing agreements put in place with the organisations listed above include the steps which need to be taken to cease processing and to either destroy or return data to NHS England and NHS Improvement once the public health emergency situation has ended‘.

It is quite difficult to see how the services provided in the creation of the datastore and the dashboard can be additional (in the sense of interoperable or directly complementary) to what was already contracted (see eg a rather detailed description here, where there is no reference to population-wide dashboards), when the COVID-19 specific solutions will be completely abandoned and thus, arguably not support the functioning of the NHS going forward. It is also quite difficult to see how the services provided are not substantially different from what was covered in the original contracts.

Of course, it could be possible to find some compatibility if the original contracts were not for specific solutions, but rather for activities—but, even then, this seems to be a rather distorted use of the rules on contract modification.

Assuming modification was illegal, should we care?

Of course, the discussion above can seem rather academic. If the UK Government (including NHSX) was allowed to enter into direct awards on the basis of the extreme urgency procurement exemption (as I have argued myself, eg here), what difference would it make if the modifications were illegal?

I think there are a few relevant differences. The first one concerns the need to ensure that the distortions to the normal functioning of the procurement rules that ensue from their deactivation in cases of extreme urgency are contained and, mainly, result in clear and traceable creations of new contractual relationships that allow for ex post control and oversight. The second, more practical one, is that the remedies for breach of the relevant rules are different.

While a breach of reg.32(2)(c) PCR2015 in the context of the pandemic can leave disappointed tenderers and the general public without much of a remedy, other than the possible (but in my view, rather unlikely) payment of damages, a breach of reg.72(1)(b) and/or (c) PCR2015 can have more significant and lasting effects, as the remedies in that case include the potential termination of the original contracts (see reg.73 PCR2015).

Indeed, reg.73(1)(a) establishes that ‘Contracting authorities shall ensure that every public contract which they award contains provisions enabling the contracting authority to terminate the contract where—the contract has been subject to a substantial modification which would have required a new procurement procedure in accordance with regulation 72’.

Now, this opens another potentially tricky statutory interpretation issue, which concerns whether the implicit direct award of the contract for the additional services would have required a new procurement procedure under reg. 72, given that it could have been exempted under reg.32. This creates two possibilities (or perhaps there are some additional ones we could find with more time to think about it).

First, a functional interpretation along the lines of ‘the greater includes the lesser’, so that we could waive the potential termination of the contract even in case of breach of reg.72, given that the award of the implicit contract would not have in casu required a new procurement procedure.

Second, a more formalistic interpretation, under which the cause for termination could not be waived because reg.73 is meant as a safeguard against abuses of reg.72 and, thus, is unavoidably triggered the moment the boundaries of reg.72 are exceeded.

Whether one option is preferable to the other can be debated de lege ferenda. For now, de lege data, I would incline towards the second option, as I think this is the one more in line with the case law of the CJEU to date—in particular, Finn Frogne.

So, in my view, I think we should very much care that the rules on contract modification may have been breached, and this creates a risk of termination of the modified NHSX contracts.

Why would they modify rather than award fresh contracts?

The possibility and risk of termination of the pre-existing contracts must have crossed the minds of the lawyers advising NHSX. I think this cannot be a simple oversight or a massive discounting of the risk of termination. There are likely to be some reasons why the modification of a pre-existing contract was used at the same time as the UK Government was directly awarding rather substantial contracts (eg in the context of the Ventilator Challenge).

Those reasons are difficult to disentangle with the available information, but my hunch is that they relate to the intellectual property clauses in the contracts and the likely possibility for NHSX’s contractors to retain very valuable know-how and other IP-protectable outputs of the COVID-19 data store and dashboard project. If this was the implication of the decision to modify pre-existing contracts with potentially favourable terms IP-related terms, then the modification could have been used as a shield against some of the scrutiny that these contracts were known to be likely to attract.

All in all, I think there are very relevant questions on this legal strategy that NHSX needs to answer in the context of a post-crisis public inquiry.

How does the UK Government's ventilator procurement strategy fit with the Commission's Guidance on COVID-19 procurement?

© FT Montage/Ian Bott.

In one more episode of this series—let’s call it #ventilatorgate already, shall we?—Dr Pedro Telles has quickly highlighted the UK Government’s response to an FT story (and twitter thread) that strongly criticised its approach to the procurement of medical ventilators.

One of the interesting parts of the Government’s (entirely predictable) response is the statement that ‘The Government’s strategy to increase ventilator capacity has always focused on three pillars: first, procuring more devices from existing manufacturers overseas; second, scaling up production of existing ventilator suppliers, and third, working with industry to design and manufacture new devices. It has also involved seeking specialist support in other areas including logistics, component and peripheral procurement, and technical expertise.’

Pedro has rightly stressed that ‘This is fascinating insight into the process. … why did the Government follow a pathway that could not (and [h]as not!) provide the NHS immediately with ventilators? The third leg of the stool is not really an appropriate answer here since they could never be approved quickly enough before going into production.’ He also added that ‘It is also a crucial recognition by the Government that ventilator designing and validating *new* ventilator designs takes years effectively meaning that there is no way the new designs could be validated and put in service in due time to deal with the current pandemic. There is an obvious consequence to this assumption and that is to clear any doubts that the Dyson contract illegal since it does not solve an immediate need.’

I fully agree. Of the three pillars of the UK Government’s strategy, only the first two are in line with the EU and UK procurement rules and, in particular, the extreme urgency procurement exemption. This is clear in the European Commission’s Guidance on using the public procurement framework in the emergency situation related to the COVID-19 crisis [2020] OJ C108I/1 (see here for comments). There is no doubt that, according to existing CJEU case law, ‘if extreme urgency is invoked, the procurement need has to be satisfied without delay. The exception cannot be invoked for the award of contracts that take longer than they would have taken if a transparent, open or restricted, procedure had been used, including accelerated (open or restricted) procedures‘ (Guidance, part 2.3.2, with reference to the Order of the Court of Justice of 20 June 2013 in Consiglio Nazionale degli Ingegneri, C-352/12, EU:C:2013:416, paragraphs 50-52).

Therefore, if the award of contracts under the ‘Ventilator Challenge’ was justified on grounds of extreme urgency, then those direct awards are illegal inasmuch as they concern new models or prototypes without regulatory approval and that would not be in a position to obtain it imminently (which seems to only be the case of the Penlon ventilators, which only required adaptation). If an alternative legal basis was used, the Government should disclose it without delay, as the illegality of the awards triggers serious risks of legal challenge and, potentially, pay-outs in damages. The need for a post-crisis public inquiry into these awards only keeps growing by the day.

I think this analysis is uncontroversial. However, it may perhaps be useful to also point out that this is not an instance of (EU) procurement law getting on the way of the Government’s bold ambitions or innovative approaches—else, this can further fuel the claims already been made by the UK Government that now more than ever there is a need for the UK to rid itself from the constraints of EU law, as well as the PM’s bonfire of procurement rules. This is not a time to allow procurement rules to be made a scapegoat for yet another attempt by the UK Government to use procurement to seek to boost the domestic industry, much as in the case of #ferrygate.

In fact, it should be stressed that the European Commission’s Guidance endorses similar approaches and unconventional commercial strategies to react to the COVID-19 emergency, just not within the narrow confines of the extreme urgency exemption. The Commission’s Guidance stresses that, within the narrow extreme urgency exception and ‘[t]o satisfy their needs, public buyers may have to look for alternative and possibly innovative solutions, which might already be available on the market or could be capable of being deployed at (very) short notice‘ (part 1). This highlights the requirement of the (near) immediacy in the supply to cover for the extremely urgent need—such as the adaptation of existing models.

This is distinguished from non-immediate alternatives and innovations, such as the development of new (to be tested and authorised) models, in relation to which the Guidance indicates that ‘Public buyers are fully empowered under the EU framework to engage with the market and in matchmaking activities. There are various ways to interact with the market to stimulate the supply and for the medium term needs, the application of urgent procedures could prove a more reliable means of getting better value for money and wider access to available supplies. In addition: ... Public buyers may use innovative digital tools ... to trigger a wide interest among economic actors able to propose alternative solutions. For example, they could launch hackathons for new concepts that enable reusing protective masks after cleaning, for ideas on how to protect medical staff effectively, for ways to detect the virus in the environment, etc’ (part 1, emphasis added).

By the UK Government’s own admission, the Ventilator Challenge was a (sort of) hackathon. Indeed, the Government’s response stresses that ‘[n]o one was under any illusions at the time of launching the Challenge that producing new designs for domestic production would be anything other than a significant and exacting test. Ventilators are highly complex medical devices requiring hundreds of individual components. That was precisely the point of issuing a public Challenge. Alongside new devices, the Challenge has pursued scaling up a number of existing, proven ventilators…’

Therefore, the adequate approach would have been to follow urgent procedures (either open or restricted), which would have required the UK Government to advertise the contractual opportunity (for 15, or 15+10 days, respectively). Given that the Ventilator Challenge was launched on 16 March 2020 and that, at the time of the Government response (19 April 2020), no new ventilators had received regulatory approval, there is no evidence that the same (sadly, so far, unproductive) result could not have been achieved by resorting to urgent (but not extremely urgent) procurement procedures.

However, openly advertising the requirements rather than holding a (by invitation only) conference call with UK manufacturers would probably not have satisfied the Government’s more veiled ambition of using this as an industrial policy opportunity. And this seems to have been an important element of the strategy too. And one that, once again, merits very close scrutiny in a public inquiry.

European Commission's Guidance on Extreme Emergency Procurement and COVID-19 -- some thoughts and a word on the Dyson contract

On 1 April 2020, the European Commission published its Guidance on using the public procurement framework in the emergency situation related to the COVID-19 crisis [2020] OJ C108I/1. In this Guidance, the European Commission explains ‘which options and flexibilities are available under the EU public procurement framework for the purchase of the supplies, services, and works needed to address the crisis‘. For a good critical first stab at the Guidance, see the comments by Dr Pedro Telles in his blog. My take on the guidance—and some of its implications in the UK are different from Pedro’s (see end of post).

The Guidance stresses that the EU public procurement framework ‘allows and encourages public buyers to pursue a multi-stage strategy. First, for their immediate and projected short-term needs, they should fully exploit the flexibilities of the framework. As a complementary tool, they are encouraged to procure jointly and to take advantage of the Commission’s joint procurement initiatives. Procedures with reduced deadlines serve their needs in the medium term, as they are in principle more reliable means of getting better value for money and [ensuring] wider access of companies to the business opportunities and a wider range of available supplies.‘

What I find extremely reassuring and apt is to see the Commission take the same extremely flexible and pragmatic approach already hinted in the earlier guidance issued at domestic level, eg in the UK (see here). Indeed, the Commission Guidance stresses that it ‘focusses especially on procurements in cases of extreme urgency, which enable public buyers to buy within a matter of days, even hours, if necessary. Precisely for a situation such as the current COVID-19 crisis which presents an extreme and unforeseeable urgency, the EU directives do not contain procedural constraints‘ (emphasis added).

The Commission’s Guidance confirms the view that the negotiated procedure without prior publication does not require any specific minimum level of competition between potential contractors — and should thus dispel any stringent approaches by the Member States, such as requiring at least three offers from potential contractors, as well as some negotiation with all of them.

The Guidance could not be clearer in stressing that under ‘Art. 32 of Directive 2014/24/EU (the ‘Directive’), public buyers may negotiate directly with potential contractor(s) and there are no publication requirements, no time limits, no minimum number of candidates to be consulted, or other procedural requirements. No procedural steps are regulated at EU level. In practice, this means that authorities can act as quickly as is technically/physically feasible – and the procedure may constitute a de facto direct award only subject to physical/technical constraints related to the actual availability and speed of delivery‘ (emphasis added).

The Commission also explicitly endorses ‘active buying’ techniques, which should reassure contracting authorities taking abnormal steps to try and secure emergency supplies of PPE, ventilators and any other needed equipment and consumables. The Commission Guidance explicitly mentions that: ‘In order to speed up their procurements public buyers may also consider to: contact potential contractors in and outside the EU by phone, e-mail or in person, hire agents that have better contacts in the markets, send representatives directly to the countries that have the necessary stocks and can ensure immediate delivery, [or] contact potential suppliers to agree to an increase in production or the start or renewal of production.‘ This is certainly welcome and will provide comfort to those taking a more commercial approach than they usually would to market engagement (or scouting).

Further than that, the Commission also endorses the use of urgent procurement to spur market innovation and matchmaking, thus dispelling doubts about the legality (under procurement rules) of even more active interventions in the market whereby the contracting authority is directly involved in structuring the collaboration between potential suppliers (and even potential competitors, although this will require careful competition law assessment), for example through COVID-19 challenges or hackathons.

In that regard, the Guidance is also clear that ‘To satisfy their needs, public buyers may have to look for alternative and possibly innovative solutions, which might already be available on the market or could be capable of being deployed at (very) short notice. Public buyers will have to identify solutions and interact with potential suppliers in order to assess whether these alternatives meet their needs … Public buyers are fully empowered under the EU framework to engage with the market and in matchmaking activities. There are various ways to interact with the market to stimulate the supply and for the medium term needs, the application of urgent procedures could prove a more reliable means of getting better value for money and wider access to available supplies’. 

The Guidelines also stress the relevance of these approaches in terms of boosting the uptake of other strategic considerations so that ‘environmental, innovative and social requirements, including accessibility to any services procured, are integrated in the procurement process’. However, it is unlikely that contracting authorities will be able to concentrate efforts on this, even if they can obtain some of the benefits due to engaging in some ‘unconventional’ procurement approaches, including more digital procurement (and innovation related to 3D printing, for example).

Beyond these general policy and strategic guidelines, which clearly convey the basic message that procurement professionals should do all they can to obtain the urgently required supplies, as well as aim to transition to a more sustainable (and planned, and hopefully less expensive and more innovative) approach in the medium term, the Commission also offers more detailed and technical guidance. Of that, I would stress the specific analysis of the conditions for resorting to the negotiated procedure without publication on grounds of extreme emergency.

It will be recalled that Art 32(2)(c) of Directive 2014/24/EU allows for this ‘insofar as is strictly necessary where, for reasons of extreme urgency brought about by events unforeseeable by the contracting authority, the time limits for the open or restricted procedures or competitive procedures with negotiation cannot be complied with. The circumstances invoked to justify extreme urgency shall not in any event be attributable to the contracting authority’. The Commission’s Guidance offers useful interpretation on the three main requirements: unforeseeability, impossibility of an alternative approach and causal link or direct relation between the extremely urgent need and the scope of the procurement, which implies an element of temporality.

The Commission addresses each of them as follows:

‘Events unforeseeable by the contracting authority in question’

The number of COVID-19 patients requiring medical treatment is rising daily and, in most Member States, is expected to increase further until the peak will be reached.

These events and especially their specific development has to be considered unforeseeable for any contracting authority. The specific needs for hospitals, and other health institutions to provide treatment, personal protection equipment, ventilators, additional beds, and additional intensive care and hospital infrastructure, including all the technical equipment could, certainly, not be foreseen and planned in advance, and thus constitute an unforeseeable event for the contracting authorities.

Extreme urgency making compliance with general deadlines impossible

It cannot be doubted that the immediate needs the hospitals and health institutions (supplies, services and public works) have to be met with all possible speed.

Whether this makes it impossible to respect even the very short deadlines of the accelerated open or restricted procedure (15 and 10 days respectively to submit the offers) will have to be assessed on a case-by-case basis, but it is likely in most cases, at least as regards the significantly increased short-term needs as the infection curve rises.

As clarified in the Court’s jurisprudence, if extreme urgency is invoked, the procurement need has to be satisfied without delay. The exception cannot be invoked for the award of contracts that take longer than they would have taken if a transparent, open or restricted, procedure had been used, including accelerated (open or restricted) procedures.

Causal link between the unforeseen event and the extreme urgency

For the satisfaction of the immediate needs of hospitals and health institutions within a very short timeframe the causal link with the COVID-19 pandemic cannot reasonably be doubted.

Only used in order to cover the gap until more stable solutions can be found

Negotiated procedures without prior publication may offer the possibility to meet immediate needs. They cover the gap until more stable solutions can be found, such as framework contracts for supplies and services, awarded through regular procedures (including accelerated procedures) [emphases added and references omitted].

This is truly good, clear and actionable guidance by the European Commission and it should be most welcome.

A final word on the UK Dyson contract

Those following the daily developments on COVID-19 related procurement in the UK will be aware of the award of a contract to Dyson for the supply of 10,000 ventilators, despite the fact that its prototype still needs to receive regulatory approval and can thus not be immediately put into production or delivered for use in the NHS.

You will find an excellent analysis of the background in several posts by Dr Pedro Telles in his blog (starting 24 March). He has been putting forward the claim that the award of that contract (and, presumably, the rest of contracts for emergency supply of ventilators to the UK Government; although he has been trying to distinguish them) is illegal because the UK Government decided not to participate in the EU’s JPA ahead of the immediate need of the ventilators. We have been discussing this on twitter (see below), so it may be time to bring this discussion to the blog.

My view is that the specific need for ventilators (and PPE, and other supplies needed in this pandemic emergency) is and will remain unforeseeable for quite a while. I do not think that high level political decisions (however wrong) should deactivate the possibility of recourse to extreme emergency procurement at an operational level. I think today’s Commission Guidance supports this view when it stresses that ‘These events and especially their specific development has to be considered unforeseeable for any contracting authority‘.

Pedro disagrees (with the Commission): ‘The Commission argues regarding the lack of foreseeability by the contracting authority that the specific needs for medical equipment and infrastructure (including ventilators) could not be foreseen and planned in advance. On this I do not agree fully with the Commission. It is true that there is a moment when the need could not be foreseen and planned in advance, but if after that moment no action was duly taken (as the UK Government did with the ventilators) then the extreme urgency was actually brought about by the contracting authority.‘

I disagree with Pedro. I think the extreme urgency procurement procedure needs to be the conduit for the first effort to address the pandemic, which will still take a long period. This is not time to engage in new theories about the imputability to the procurement function of rather complicated political calculations (I sense there is a PhD thesis to be written on that, after the dust settles).

However, that does not mean that this is a free for all. The Commission has also clearly indicated that ‘if extreme urgency is invoked, the procurement need has to be satisfied without delay. The exception cannot be invoked for the award of contracts that take longer than they would have taken if a transparent, open or restricted, procedure had been used, including accelerated (open or restricted) procedures‘ (which are 15 and 25 days respectively). That is the reason why I think the award of the contract for 10,000 ventilators to Dyson is very likely illegal (on this overall conclusion, Pedro and I are agreed) and that the UK Parliament (when out of recess, or virtually active) and the National Audit Office need to take a very close look into this award. As I said on twitter, this starts to look very much like #ferrygate.

Extreme emergency procurement and COVID-19 -- re today's UK guidance

The UK Government has issued guidance on using public procurement to respond to the COVID-19 emergency earlier today (see PPN 1/20). This follows other EU countries’ introduction of emergency legislation and guidance on the same topic (see eg Pedro Telles’ discussion of Portugal’s).

If any EU country is yet to issue guidance or legislation, they should not necessarily be expected to do so as, strictly speaking, that should not be necessary because EU law (and, implicitly, most domestic transpositions) already contains the necessary escape valve to allow for the setting aside of most constraints on the contracting authority’s discretion through extensive use of direct awards where extreme urgency makes them indispensable eg to protect human health or orderly social functioning. Domestic emergency legislation may only be necessary where domestic rules impose other constraints (eg budgetary authorisation, legal compliance checks) that also need to be waived or suspended.

From an EU law perspective, it is worth reminding ourselves that Art 32(2)(c) of Directive 2014/24/EU clearly establishes that contracting authorities can resort to the negotiated procedure without prior publication ‘in so far as is strictly necessary where, for reasons of extreme urgency brought about by events unforeseeable by the contracting authority, the time limits for the open or restricted procedures or competitive procedures with negotiation cannot be complied with. The circumstances invoked to justify extreme urgency shall not in any event be attributable to the contracting authority.’ That is, contracting authorities facing extremely urgent needs can carry out either a negotiated procedure with limited competition on the basis of direct approaches to potential contractors, or a direct award of a contract to a specific supplier without any competition.

The UK guidance is particularly relevant to understand the limits of this exception, as the domestic transposition had followed a strict copy-out approach and reg.32(2)(c) of the Public Contracts Regulations 2015 has the same content as Art 32(2)(c) Dir 2014/24. In that regard, the content of PPN 1/20 usefully explains that:

… in responding to COVID-19, contracting authorities may enter into contracts without competing or advertising the requirement so long as they are able to demonstrate the following tests have all been met:

1) There are genuine reasons for extreme urgency, eg:

• you need to respond to the COVID-19 consequences immediately because of public health risks, loss of existing provision at short notice, etc;

• you are reacting to a current situation that is a genuine emergency - not planning for one.

2) The events that have led to the need for extreme urgency were unforeseeable, eg:

• the COVID-19 situation is so novel that the consequences are not something you should have predicted.

3) It is impossible to comply with the usual timescales in the PCRs, eg:

• there is no time to run an accelerated procurement under the open or restricted procedures or competitive procedures with negotiation;

• there is no time to place a call off contract under an existing commercial agreement such as a framework or dynamic purchasing system.

4) The situation is not attributable to the contracting authority, eg:

• you have not done anything to cause or contribute to the need for extreme urgency.

In assessing whether these tests are met, it will be important to remember that the CJEU has not imposed a threshold of absolute impossibility of alternative procurement approaches (in particular if they are evidenced ex post). In that regard, even if the interpretation of the grounds for access to extreme urgency procedures need to be interpreted narrowly and the CJEU has stressed that recourse to direct awards need to be subjected to a strict assessment of whether the contracting authority “acted diligently and whether it could legitimately hold that the conditions [for recourse to this procedure] were in fact satisfied” (Fastweb, C-19/13, EU:C:2014:2194, para 50), which make it clear that this procedure must be understood as exceptional (Fastweb, para 106)—in my opinion, there is little doubt that contracting authorities working to react to the challenges of COVID-19 can broadly rely on this exception for the first wave of reactive measures that require emergency supplies or services, provided only that they make sure that they respect the proportionality of the measures and that they document their decision-making adequately.

In that regard, the UK guidance is once again helpful when it establishes that

Contracting authorities should keep a written justification that satisfies these tests. You should carry out a separate assessment of the tests before undertaking any subsequent or additional procurement to ensure that they are all still met, particularly to ensure that the events are still unforeseeable. For example, as time goes on, what might amount to unforeseeable now, may not do so in future.

You should limit your requirements to only what is absolutely necessary both in terms of what you are procuring and the length of contract.

Delaying or failing to do something in time does not make a situation qualify as extremely urgent, unforeseeable or not attributable to the contracting authority. This is because:

• the PCRs expect a contracting authority to plan its time efficiently so that it is able to use a competitive procedure;

• competitive alternatives (eg. an accelerated open procedure) can be completed quickly;

• case law has held that knowing that something needs to be done means it is foreseeable;

• a contracting authority’s delay or failure to do something is likely to mean that the situation is attributable to the contracting authority.

The guidance strikes an adequate balance when stressing the relevance of the passage of time in terms of unforeseeability of the need, which should make contracting authorities think about phased approaches involving eg extreme urgency direct awards for short-term supplies or services (eg the next three to six months), and urgent procedures for the following period/s. However, in the opposite direction, it could be that the passage of time and the impact of the emergency measures on public contractors trigger the need for further access to extreme urgency procedures due to the possible future breakdown of procurement mechanisms currently in place — eg if suppliers fail to deliver (eg due to lockdown of their premises, supply chain breakdown or any other problems), or demand is such that they cannot fill in the requirements of all contracting authorities placing orders (eg in the context of a framework agreement). This is also covered by the notice, which shows great commercial awareness to the fact that the unforeseeability does not only refer to the public health situation generating the relevant need, but also to the material availability of the requirement.

These are uncertain times and flexibility and adaptability will be crucial in providing the best possible responses to the mounting challenges of the pandemic and the socio-economic implications of the measures being adopted (or not) by national Governments. Luckily, for once, procurement law is not in the way. The only requirement that should currently be on procurement officers’ minds is to keep adequate records of their decisions and apply sanity checks to the acceptable default position to directly award contracts for extremely urgent needs. At least for the next few months.

As we learn more of the virus, observe the effects of the pandemic and, hopefully, start to see the impacts of governmental intervention, there will be time to start to consider the end point at which the extreme urgency procurement genie should be put back in the bottle. For now, I would not worry about that at all.

CJEU on renegotiation of mandatory technical conditions in negotiated procedures: A good case? (C-561/12)

In its Judgment of 5 December 2013 in case C-561/12 Nordecon and Ramboll Eesti, the CJEU has ruled on the interpretation of Article 30(2) of Directive 2004/18 as regards the negotiation of technical elements between a contracting authority and the tenderers participating in a negotiated procedure.

 

The case is complicated by the fact that a more general issue concerning the (potential) obligation to exclude technically non-compliant tenders in a negotiated procedure is entangled with the limits of the negotiation authorisation provided for in Article 30(2) Directive 2004/18. In my view, by not clearly distinguishing both issues, the CJEU may have provided unnecessarily limiting guidance on the proper interpretation of Article 30(2) Directive 2004/18.

 

In the case at hand, the contracting authority launched a negotiated procedure for the construction of a new road. The road had to have certain technical characteristics (including, amongst others, specific width in different parts of the road) and the technical specifications did not allow for the submission of variants, which (implicitly) means that  all technical requirements were mandatory (art 24 dir 2004/18) and, consequently, tenders that failed to meet the technical specifications (in full) should had to be rejected by the contracting authority.

 

However, the contracting authority engaged in negotiations with all tenderers, including one that had submitted a tender that did not meet the technical description of the road (it was narrower in some points). Even if, eventually, that tenderer was not awarded the contract, there were several challenges against the award decision and the case ended up before the CJEU on grounds of a potential infringement of Art 30(2) Directive 2004/18. The Court addressed it as follows:

33 [...] the referring court asks whether Article 30(2) of Directive 2004/18 allows the contracting authority to negotiate with tenderers tenders that do not comply with the mandatory requirements laid down in the technical specifications of the contract.

34 In that regard, it must be recalled that, in certain cases, Article 30(2) of Directive 2004/18 allows the negotiated procedure to be used in order to adapt the tenders submitted by the tenderers to the requirements set in the contract notice, the specifications and additional documents, if any, and to seek out the best tender.

35 According to Article 2 of Directive 2004/18, contracting authorities are to treat economic operators equally and in a non-discriminatory manner and are to act in a transparent way.

36 The Court has stated that the obligation of transparency is essentially intended to preclude any risk of favouritism or arbitrariness on the part of the contracting authority (Case C‑599/10 SAG ELV Slovensko and Others [2012] ECR I‑0000, paragraph 25).

37 Accordingly, even though the contracting authority has the power to negotiate in the context of a negotiated procedure, it is still bound to see to it that those requirements of the contract that it has made mandatory are complied with. Were that not the case, the principle that contracting authorities are to act transparently would be breached and the aim mentioned in paragraph 36 above could not be attained.

38 Moreover, allowing a tender that does not comply with the mandatory requirements to be admissible with a view to negotiations would entail the fixing of mandatory conditions in the call for tenders being deprived of useful effect and would not allow the contracting authority to negotiate with the tenderers on a basis, made up of those conditions, common to those tenderers and would not, therefore, allow it to treat them equally.

39 In the light of the foregoing considerations, the answer to the first question is that Article 30(2) of Directive 2004/18 does not allow the contracting authority to negotiate with tenderers tenders that do not comply with the mandatory requirements laid down in the technical specifications of the contract (C-561/12 at paras 33-39, emphasis added).

In my view, this is a problematic interpretation, as Article 30(2) Directive 2004/18 covers a range of cases and, at least in some of them, the interpretation provided by the CJEU nullifies Art 30(1) Directive. To be more specific, under Art 30(1)(a) Directive 2004/18, contracting authorities are allowed to resort to negotiated procedures "in the event of irregular tenders or the submission of tenders which are unacceptable [...] in response to an open or restricted procedure or a competitive dialogue insofar as the original terms of the contract are not substantially altered".

 

The interpretation provided by the CJEU would imply that the lack of compliance or the reason that made the tenders unacceptable could not have been of a technical nature (or, at least, could not affect a mandatory technical specification) because, in that case, even if the procedure would be formally available under Art 30(1)(a), the contracting authority could not engage in any meaningful negotiation oriented towards adapting the tenders to the requirements set in the (technical)  specifications--which is precisely the purpose of Art 30(2) dir 2004/18, or one of them at least. Moreover, risks of excessive deviation from the original conditions are controllable by the last caveat in Art 30(1)(a), where it is expressly required that the original (technical?) terms of the contract are not substantially altered.

 

The interpretation provided by the CJEU could work when Article 30(2) is triggered by other grounds for resorting to the negotiated procedure under Art 30(1), but not for Art 30(1)(a). In my view, this derives from an excessive reliance on the principle of non-discrimination and a too rigid understanding of the need and purpose for a negotiated procedure triggered by a fundamental flaw of the initial competitive procedure (be it due to a fundamental technical flaw, excessive requirements, or any other reasons).

 

In my view, the CJEU could have found two alternative routes to sort out the case. Well, possibly three.

 

The first one, by accepting the criticisms raised as to the inadequacy of Art 30(2) Dir 2004/18 to solve this specific case--which should have led it to declare the question inadmissible and leave it at that.

 

The second one, to consider that the case was actually concerned with an illicit acceptance of technical variants and, consequently, a breach of Art 24 Directive 2004/18--hence sending out the clear message that, in negotiated procedures, contracting authorities still need to indicate that variants are acceptable if they want to engage in technical dialogue [except in the case of art 30(1)(a) where the tenders are inadmissible or unacceptable on technical grounds].

 

There would be a potential third option, ie to set out a differential interpretation of Art 30(2) depending on the ground in Art 30(1) which triggers the availability of the negotiated procedure--something that we can only do speculatively now by stressing the factual conditions that surrounded the cases [although it is not explained why the contracting authority resorted to a negotiated procedure and why it was acceptable under art 30(1) dir 2004/18, which seems duboius in the circumstances].

 

As a conclusion, I think that the Nordecon Judgment would actually create a very significant problem if technical negotiations were completely excluded in all cases and under all circumstances in negotiated procedures--and, particularly, where negotiations are triggered by the technical unsuitability of all the tenders received. However, this is something that may be avoided under the new Directives if an uncritical reading of Art 30(2) as interpreted in Nordecon is not carried forward to future Art 27 of the new Directive on the (rebranded) competitive procedure with negotiation.