High Court judge refuses application by Treasury to lift automatic suspension

A High Court judge has dismissed an application by the Treasury and two of its agencies to lift an automatic suspension under the Public Contracts Regulations 1996.

The case of Edenred (UK) Limited v HM Treasury and another [2014] EWHC 3555 (QB) relates to the Government’s plans to replace the current system of support for working parents, ‘Employer Supported Childcare’ (ESC), with a new scheme known as Tax Free Childcare (TFC).

The claimant in the procurement challenge, Edenred, is one of the private commercial operators that administers the voucher scheme under ESC.

It has been decided that the TFC scheme will be administered by National Savings & Investments (NS&I), all of whose operations are contracted out to Atos.

Edenred is seeking declarations that the decision to have NS&I administer the TFC scheme is unlawful. This is principally on grounds that:

  • the arrangements will involve the conclusion of a public services contract within the meaning of the 2006 Regulations between either or both of the first two defendants, HM Treasury and HM Revenue & Customs, and the third defendant, NS&I, or alternatively that
  • the arrangements will involve a material variation of a public services contract between NS&I and Atos.

Edenred claims that in either case it is necessary to hold a tender procedure in accordance with the Regulations. An expedited trial of the  key issues is listed for 24 November 2014.

Mr Justice Leggatt said it seemed to him that the critical issue in the case was the second of the three issues which was to be decided at the forthcoming trial: “that is, whether the use of Atos to provide the services required to administer childcare accounts for the purpose of the TFC scheme will amount to a material variation of the Atos contract which requires a separate tender, as the claimant contends; or whether, as the defendant contends, the services that Atos are to provide fall within the scope of the work for which they have already successfully tendered”.

He added that he considered it would be inappropriate for him to express any view about the merits at this hearing, even if he had formed one, given that the trial was only four weeks away.

Dismissing the application to lift the suspension, Mr Justice Leggatt accepted that damages would not be an adequate remedy because of the difficulty of quantifying the opportunity which Edenred would have lost if there had been no tender.

However, he added that the same point did to a significant extent undermine Edenred’s claims about the damage to their business that they would potentially suffer if no trial took place.

“If they are successful at trial, the only outcome which they can hope to achieve is an opportunity to take part in a tender process, in the event that the Government arranges matters in a way which requires it to hold one in the light of the court's judgment,” the judge said.

Of much greater significance, Mr Justice Leggatt found, than any speculative private interest of the claimant was a wider public interest at stake which counted in the claimant's favour.

“If Edenred’s contentions are correct and the currently proposed arrangements are unlawful, the result of lifting the suspension would be that a public contract for services worth some £160 million would be awarded without the tender process which the law requires,” he said.

“The Public Services Regulations are designed to serve important public interests of promoting competition and fairness in the use of public resources. It is clear that those interests would be damaged in an irreparable way if the suspension is lifted and the claimant is correct in its case as to the legality of the process.”

Counsel for the defendants said a delay in the implementation of a flagship Government policy was “inherently undesirable” and that the benefits which the TFC scheme would deliver to members of the public would be lost for that period.

A delay in getting money to families who stood to benefit from the TFC scheme was a significant public interest which needed to be taken into account, he added.

The judge, however, acknowledged a point made by Edenred’s QC that if the Government were concerned about the potential consequences of a six-week delay in implementing the TFC scheme, measures could be taken to mitigate the effects of that delay.

Mr Justice Leggatt said it was not an insignificant consideration that what would be lost or delayed was the use of public money in the manner in which the Government considered to be in the best interests of the public.

But he said it was “right to bear in mind that, to the extent that there is delay in commencing payments to families who would otherwise receive money earlier, it can be presumed that that money will be put to other beneficial public uses”.

The judge concluded that the detriment to the public interest in the avoidance of delay was not sufficient to outweigh the strong public interest in compliance with the law and the benefits that implementing the scheme in a lawful way might be expected to bring.

“That is particularly so given the arrangements that have been made for an expedited trial and the fact that, as I have assumed for the purpose of this judgment, a decision on the question of legality can be expected within a relatively short time.”

He added: “In circumstances where there is a serious argument, on which the court will very soon be able to adjudicate, that the proposed arrangements for administering the TFC scheme are unlawful because of the failure to hold a tender, such detriment to the public interest as will result from the delay involved in resolving this issue cannot in my view justify bypassing the question of legality and allowing the scheme to be introduced in a potentially unlawful way.”

Commenting on the case, 11KBW – whose barristers Jason Coppel QC, Joseph Barrett and Rupert Paines are acting for the claimant, instructed by Pinsent Masons – said: “The case raises novel issues about the legal status of arrangements entered into between departments and agencies of central government and also about the application of the Pressetext tests to framework and similar agreements, where a tenderer wins the right to perform services to public bodies in the future which have not been precisely envisaged and defined at the time of the original tender process.

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A copy of the judgment can be viewed here.