A recent High Court case has provided guidance on the circumstances in which a contracting authority can award further contracts to a contractor without the need to re-advertise the procurement under the EU procurement rules. It will help shape the scope contracting authorities have in arguing that the addition of further work does not constitute a material variation to the original procurement.

Although the new public procurement regulations (due to come into force in the UK later this year) will clarify the boundaries of what constitutes a material variation, this case is likely to remain relevant to the interpretation of the rules after those reforms.

The judgment in Edenred (UK Group) Ltd v Her Majesty’s Treasury, HMRC and NSI [2014] EWHC 3555 (QB) was handed down on 22nd January 2015. The case concerned the Government’s new “Tax Free Childcare” (“TFC”) system for working parents. TFC is due to replace, this year, the current “Employer Supported Childcare” (“ESC”). Edenred is a private commercial operator which along with other operators administer the ESC scheme. TFC was to be administrated solely by National Savings and Investments (“NSI”). All of NSI’s operations are contracted out to outsourcing provider, Atos.

HMRC and NSI concluded a memorandum of understanding and NSI’s contract with Atos was varied to include extra services needed to provide TFC. Edenred took exception to this variation of Atos’s contract and started legal proceedings to challenge the award.

It claimed that the proposed TFC arrangements where unlawful as they constituted direct legal awards in that they would involve:-

– the conclusion of a public services contract under the Regulations without any proper tender procedure namely a direct award by one public body to another; and

– a material variation of a public services contract between NSI and Atos without a tender procedure which would constitute an illegal direct award.

On the direct award point, the Court held that this is not in fact a contract and so therefore not capable of being a public contract. The Court concluded that HMRC and NSI had only entered into a MoU for internal working arrangements between Crown bodies. Consequently it is not a contract between different parties but just a co-operation agreement between departments. As there was no contract, there was no public contract that needed to be tendered and consequently no direct award. In delivering her judgement the Judge held that:-

“In substance and in reality what has happened here is that the Government has decided to deliver TFC itself, internally, rather than through an external provider.”

With regard to Edenred’s assertion that the addition of extra services to the Atos contract constituted a material variation, the Court considered the leading European Court case of Pressetext [2008] EUECJ C-454/06 (19 June 2008). The Court in the present case held that that even though the new work required an amendment to the Atos outsource contract, the new services were the same in type as services advertised in the original contract award to Atos. In any event, the Court concluded that the changes were not material. In coming to this conclusion the Judge commented that had the new services been expressly referred to in the original bid, it was unlikely that other bidders who could have bid but did not, would now be interested. Finally, the Judge concluded that no other party can have suffered any detriment.

The case highlights the importance for contracting authorities of building into the scope of an original procurement sufficient leeway in terms of additional scope and value to ensure that if variations are needed over the life of the contract, they can be accommodated within the context of that procurement and will not necessitate the requirement to undertake a fresh procurement.

A link to the case can be found here.