Anticipation of Variation Does Not Derail Tender Fairness

The rules relating to public sector tendering are complex, but it is necessary that public sector procurement processes are both fair and seen to be fair. However, this can be problematic in many projects, where variations once the contract is in progress are not uncommon.

Once variations start, questions can then arise regarding the tendering process itself, and challenges may be made by the unsuccessful tenderers.

One such case has recently been in front of the Supreme Court, which had to decide to what extent a public contract can be varied before a fresh competitive tendering process is required. The Court has now given authoritative guidance on the issue.

The case dealt with a company which had won a contract to provide operational support, including transaction management and customer services, to National Savings and Investments (NS&I), a non-ministerial government department. Following the introduction of a government policy to provide tax-free childcare, which was to be delivered through NS&I, the company's contract was extended to embrace management of childcare accounts and supporting services.

A competitor company, which had lost out due to the shift in government policy, launched proceedings under the Public Contracts Regulations 2006, arguing that the variation of the contract had necessitated a new tendering process. That argument was rejected by the High Court and the Court of Appeal.

In dismissing the competitor's final appeal, the Supreme Court noted that the purpose of the Regulations, and EU procurement laws which underpin them, is to promote effective competition, transparency and equal treatment in the field of public contracts. The issue of whether a fresh tendering process was required hinged on whether the contract had been materially varied.

The Court noted that the original contract and the tendering process which led to its award had envisaged future expansion of the services provided to NS&I by the successful tenderer. It was necessary for public contracts to be sufficiently flexible to accommodate new circumstances and policy changes. Although contracts could not be designed to avoid EU law obligations, the expansion in the scope of the winning company's contractual services was within a reasonable compass and did not amount to the award of a new contract.
