Public matters newsletter, March 2014
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- 1. Birmingham Exeter London Manchester Nottingham0121 237 3900 01392 458 800 020 7337 1000 0161 300 8100 0115 976 6000www.brownejacobson.com1Index2 3 New public procurement regime Steven Brunning4 6 Procurement policy and guidance 2014Anja Beriro7 10 Tenant in administration - where do I stand on rent?Neil Walker1114 Public procurement recent case on lifting the automatic suspensionSteven Brunning1517 Dont worry, its guaranteed. Or is it?Neil WalkerPeter Ware | 0115 976 6242 | Peter.Ware@brownejacobson.com
- 2. 2The Cabinet Office has just announced that the 2014 EU Procurement Directives which were approved by the EU Council on 11 February 2014, will be published in the Official Journal of the European Union (OJEU) on 28 March 2014. They will come into force on 17 April 2014 and EU member states will have 24 months to implement the new directives into national legislation. The UK is aiming to complete implementation much sooner than this. The Cabinet Office is currently consulting on several of the optional provisions set out in the directives with a view to issuing draft regulations for consultation as soon as possible. Once in force, the new regulations will replace the existing Public Contracts Regulations 2006 and Utilities Contracts Regulations 2006.The main objectives of the new regime are to simplify the rules, introduce greater flexibility and efficiency and foster innovation in the procurement process. The new regime is also aimed at increasing small and medium enterprises (SME) access to public procurement and enabling sustainability and other societal goals to be incorporated into the procurement process.Focusing on the public sector directive, the main changes arising from the directive include: abolition of distinction between Part A and Part B services and the introduction of a special light touch regime for contracts for social, health and other specified services less onerous regime for non-central government bodies clarification of pre-OJEU notice market engagement rules revised and new procurement procedures including reduced timescales and the new innovation partnership procedure new rules on evaluation criteria including the introduction of lifecycle costing new grounds for exclusion at selection stage (e.g. tax evasion) and self-cleaning provisions allowing mitigating circumstances to be taken into account mandatory use of electronic procurement (with extended timetable for implementation allowed) incorporation of public-public contract exemptions (covering in-house awards and co-operation between public bodies) mutuals exemption allowing the award of certain contracts to be reserved to mutual organisations satisfying particular criteria codification of material change rules clarifying when a contract change triggers a duty to put the contract back out to competitive tender.
- 3. 3We will continue to monitor the progress of the new regime. Watch out for our future articles and training sessions where we will delve into the detail of the new rules and highlight the practical implications for both contracting authorities/utilities and bidders.Steven Brunning | 0115 934 2056 | firstname.lastname@example.org
- 4. 4Since the beginning of 2014 the Cabinet Office has been keen to continue its promotion of procurement best practice with a number of new Policy Procurement Notes (PPNs). Some of these do not relate to local authorities but the guidance may still be useful. The main aims are improving the sharing of information within government and continuing to support the inclusion of SMEs. So, in order of appearance: PPN 01/14 covers the sharing of confidential information. This PPN only affects central government which includes executive agencies and non-departmental public bodies. This requires drafting in contracts which allows information that the economic operator has reasonably designated as confidential to be shared with other parts of central government. Procurement law states that such information must be kept confidential by the contracting authority (Regulation 43 of the Public Contracts Regulations 2006 (as amended) (the Regulations). It is an interesting interpretation of the definition of contracting authority that is used by the Cabinet Office which is usually very keen to stress the independence and autonomy of executive agencies and non-departmental public bodies PPN 02/14 extends the mystery shopper service. This affects all public sector bodies. As well as continuing to respond to requests to investigate procurement processes, Cabinet Office will undertake random spot checks on procurement processes, usually via portals where procurement documents are published. Again, the main aim is to challenge what are believed to be unnecessary barriers to SME participation in procurement exercises and to promote good practice. The PPN doesnt say what will happen if, during a procurement process, the mystery shopper scheme challenges the approach of a public body. Experience of our clients shows that even the previous mystery shopper scheme had the potential to put the brakes on a procurement exercise because of the time it took for discussion with Cabinet Office. Further detail needs to be given by Cabinet Office so that public bodies are able to manage any spot check appropriately PPN 03/14 is an updated version of PPN 06/13 and relates to using procurement processes to promote tax compliance. It only affects central government departments, their executive agencies and non-departmental bodies and requires specific Pre-Qualification Questionnaire (PQQ) questions to be used during a procurement exercise PPN 04/14 specifies a new model services contract for central government to use for IT services valued at more than 10million. We assume only for those contracts not procured under a framework PPN 05/14 sets out the new fair deal pension arrangements which relate to central government, executive agencies, non-departmental bodies, NHS bodies, maintained schools and academies (for
- 5. 5the last two, only for staff in the Teachers Pension Scheme). Staff that are compulsorily transferred to a private sector provider as part of an outsourcing (and arguably these days as part of a public sector mutual) will be able to decide whether they want to stay with their existing public sector pension or not. Previously it was at the discretion of the new employer to set up a broadly comparative scheme. The PPN clearly states that it doesnt apply to procurement exercises that are already underway.In addition to Cabinet Office continuing to promote good public procurement practice, the House of Commons, Community and Local Government Committee published the Local government procurement report (the Report) on 24 February 2014. This is the product of an inquiry launched in July 2013 to determine whether policies from both central and local government, the Local Government Associations (LGA) Procurement Pledge for Local Authorities from 2012, for example, were having a positive effect. The conclusion is that some authorities not still not doing enough to try and reduce public spending. In addition to this, collaborative procurement could save an additional 1.8 billion, should be the default option and the LGA should review how collaborative procurement is undertaken and produce best practice guidance. However, collaboration shouldnt come at the expense of procuring services to deliver local priorities.Other recommendations include: recommending that the government review the Social Value Act 2012 and the Community Right to Challenge provisions of the Localism Act 2011 to see whether they could be revised or better guidance given which would enhance the social value of contracts encouraging central government to do more to highlight best practice and to give guidance and training, both around procurement skills generally and the new EU procurement directive. The latter is certainly already being done with the Cabinet Office arranging a number of training days for the public sector in June and July of this year (insert link to registration page). One of the reasons to highlight best practice is improving the accessibility of tender opportunities to SMEs local authorities taking a proportionate approach and not gold plating procurement processes which increase costs and time and disadvantage SME and Voluntary Service Overseas (VSOs) outsourcing exercises ensuring that employees do not receive lower quality pay and pension provision in the private sector and that contracts are used to enhance social value which can include the living wage acknowledging that there must be more investment in procurement skills across local authorities so that knowledge isnt held by a select few. As lawyers, we would hope that this includes client teams being encouraged to use the legal department of the local authority more proactively and as a critical friend
- 6. 6 improving the management of contracts, particularly complex, long-term, high value ones. The report was clear that local authorities must do more to ensure that fraud doesnt become widespread. Currently fraud is not a big issue but there is a concern that it will become more likely, particularly around price fixing, as more services are outsourced. To support this, more needs to be done to allow whistleblowing when necessary.The recommendations in the Report bring to the surface some of the tensions that local authorities are currently facing. The increased pressure on budgets means that it is absolutely essential that procurement processes are streamlined and undertaken in the most cost effective fashion and that high value contracts are managed more proactively to ensure best value. At the same time, the training which the Report recommends requires upfront investment and in a time of austerity it is hard to focus on long term benefits. However, many of the recommendations show that there is already best practice in some local authorities. It is really important that this is brought together to ensure that local authorities dont have to reinvent the wheel.Anja Beriro | 0115 976 6589 | Anja.Beriro@brownejacobson.com
- 7. 7Where do I stand on rent?Apart from their numerous other functions and roles, most local authorities and other public sector clients are property landlords of one form or another.They may let property such as shopping centre, business parks or industrial estates for long term investment purposes but might have become accidental landlords having become the proud owners (perhaps through cost cutting, downsizing or merger) of surplus property which might need to be let pending a longer term sale when the market improvesThey may be short term landlords of older property intended in the longer term for development purposes.Issues facing private sector clients can be just as relevant in the public sector. Tenant insolvency is of course an occupational hazard to landlords of commercial property, but in relation to tenant administration many think that the law had swung too far in favour of administrators and given them an unfair tactical advantage and a means of avoiding paying rent.The current law until very recentlyUntil earlier this year the 2009 case of Goldacre (Offices) v Nortel Networks UK and the 2012 case of Leisure (Norwich) v Luminar Lava Ignite represented the established current law:In Goldacre, the lease provided that the rent was (as it so often is, even with modern leases) payable quarterly in advance on the usual quarter days.The tenant went into administration before the relevant quarter day but the company did not vacate until later (it had though vacated before the end of the relevant quarter).The High Court held that the rent which fell due on the relevant quarter day was payable by the administrators as an expense of the administration (and was therefore payable in full by the administrators) even though they may cease to use the premises before the end of the period to which the payment relates.Sounds like good news for landlords doesnt it?Yes, but for the fact that in the Luminar case, the High Court held that rent payable in advance and falling due before the administration of a tenant could not be payable as an expense of the administration even if the administrator might retain the property for the purposes of the administration for some or all of the
- 8. 8period to which the advance payment related (leaving the landlords able only to claim that rent as unsecured creditors in the administration)As a result of these decisions it became common practice for administrations to be managed to take effect after a rent payment date to give administrators an effective rent free quarter.Not such good news for landlords then.It is worth pointing out here that the decisions in these cases can apply to liquidations as well as administrations.The latest current lawThe pendulum may have swung back as the Court of Appeal case (Jervis and others v Pillar Denton Ltd and others  EWCA Civ 180) relating to the administration of Game Group provides some welcome relief for landlords, at least for the time being.As always the specific circumstances are relevant, and in insolvency cases the facts are not always entirely straightforward, but here goesThe Game Group caseGame Stores Group Ltd went into administration on 26 March 2012, having failed to pay the March quarters rent (due on 25 March) on 425 leases that it held as tenant (approximately 10m).Some of the stores were closed, but others were sold to Game Retail Ltd (New Game) on 1 April 2012 pursuant to a business sale agreement.Under that agreement, New Game was given a licence to occupy the stores by the administrators (pending the negotiation of new deals with the landlords).Approximately 3m worth of rent remains outstanding in respect of these stores.Based on the Goldacre and Luminar cases, directions were agreed between the parties that:1. The rent which fell due on 25 March was not payable by the administrators as an expense of the administration (leaving the landlords to claim that rent as unsecured creditors in the administration process).
- 9. 92. Rent that fell due after the administrators appointment (when the administrators were using the premises for the purposes of the administration) would be treated as an expense of the administration (and was therefore payable in full by the administrators) even though the administrators may cease to use the premises before the end of the quarter.Given the importance of the matter, the landlords (Hammerson, British Land, Land Securities and Intu Properties) appealed these directions (in relation to four representative leases) on the basis that the courts had taken a wrong turn in the past, leading to a result that did not reflect commercial sense.The administrators adopted a neutral stance (having the benefit of an indemnity for the unpaid rent from New Game should the Court of Appeal rule in the landlords favour).Th...
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