The Government has replaced its Code of Practice on Consultation issued in July 2008. The new guidance includes that “consultations should last for a proportionate amount of time”, rather than prima facie for a 12 week period.

A contracting authority must verify the suitability of its potential service providers. That verification is intended, in particular, to enable the authority to ensure that a tenderer, if successful, will have the means necessary to perform the contract, and to enable the authority to be confident that, throughout the period of the contract, the successful tenderer will be able to use whatever resources it relies upon, including the capacities of other entities.

That gives rise to two questions: first, as to what proof the authority can call for that these resources will be at the economic operator’s disposal; and, second, as to the nature of the links between that operator and those other entities. EU policy is that the tenderer is free to choose the legal nature of the links it intends to establish with those other entities.

In a case from Latvia, C-234/14, the ECJ has on 14 January 2016 held that Directive 2004/18/EC precluded a Latvian local authority from requiring a tenderer, which relied on the capacities of other entities for the performance of the contract concerned, to establish links of a precise legal nature with those entities, so that only those particular links were capable, in the eyes of the authority, of proving that the contractor does in fact have the resources necessary to perform that contract. The municipality required the tenderer, before the award of the public contract, to conclude a cooperation agreement with those entities or to set up a partnership with them. That requirement was ruled impermissible.

Cases involving NHS bodies continue to be instructive for local authorities. See R(QSRC Ltd) v NHS Commissioning Board [2015] EWHC 3752 (Admin) on the ability to enter into an interim contract pending the completion of a procurement exercise, even if (paragraph 107) the procurement exercise has been considerably delayed,  provided (paragraph 103) that there is preference of an existing provider over other potential providers; and Keep Wythenshawe Special Ltd v NHS Central Manchester CCG [2016] EWHC 17 (Admin), at paragraphs 62-79 inclusive, on how a consultation exercise should be structured, the manner in which it should be carried out, when there should be a re-consultation, and influences on the requirements of fairness.

In BT Cornwall Ltd v Cornwall Council [2015] EWHC 3755 (Comm), a services provider brought a claim against the local authority and other public sector bodies for an injunction to prevent the termination of a potentially long duration £160 million agreement between them.  The claim failed. The agreement covered services such as health, transport, communications and public safety.  It also provided for the creation of new jobs for local residents.

The agreement contained a clause entitling the local authority to waive key performance indicator scores resulting from service failures if it was satisfied that a remedial plan was in place. There were substantial problems with performance.  A number of key performance indicators fell consistently below target level.  A backlog of work accrued.

The parties established an executive forum aimed at resolving the issues. Later, however, the local al authority stated its intention to terminate the agreement for material breach.  It also claimed that the service provider’s failure to meet its annual jobs guarantee gave rise to an obligation to provide a remediation plan, which it had failed to do.  The service provider claimed that a large number of faults had been caused by the local authority.  It also claimed that a separate agreement had been entered into for the backlog to be cleared, with the implication that the key performance indicator results which fell below breach level would not be used to justify termination, and that the local authority was in any event estopped from relying on breaches in terminating for material breach.

Knowles J held that the failure to create new jobs resulted at least in part from the local authority’s failure to secure a health contract, which would have accounted for 70 new jobs. There was no contractual requirement for a remediation plan.  Accordingly, the service provider was not in breach of the agreement in that respect.  Moreover, there was no evidence that the waiver clause in the agreement had been exercised nor was there any reason to imply a waiver.  The service provider was contractually obliged to resolve the backlog and was not entitled to protection from the consequences of its failure to do so.

Knowles J further held that there was no basis for a case on estoppel or affirmation. The fact that the local authority was prepared to engage with the executive forum and to work collaboratively with the service provider was not to be held against it and did not signal that it would refrain from taking action under the agreement.   There had been no material delay on the local authority’s part, and neither its actions nor the passage of time were to be taken as an election not to terminate for material breach.

In conclusion, the service provider had failed to provide the service it had promised to the required standard. There was no capriciousness or bad faith on the local authority’s part in expecting it to clear the backlog or take the contractual consequences if doing so resulted in further breaches of the key performance indicators.  Accordingly, the service provider was in breach of the agreement such as to justify termination.

James Goudie QC

H M Treasury has issued a Consultation Paper, for response by 25 January 2016, on the final draft Regulations pursuant to the Small Business, Enterprise and Employment Act 2015 allowing for the recovery of public sector exit payments when a high earner returns to the public sector shortly after leaving. There are changes including as follows to the previous proposal. 

The Government proposes to replace the stipulation that exit payments are recovered when an individual returns to the same part of the public sector with the proposal that public sector exit payments are recovered when an individual returns to any part of the public sector. The amount paid back will be net of tax paid.

The previous starting point was that recovery would apply only to individuals earning at or over £100,000. The Government now proposes to set the minimum salary at which the recovery provisions apply at £80,000 per annum.

The Government proposes to remove the full recovery period during which exit payments should be repaid in full on returning to a public sector body. As such, the taper begins from the first day after a public sector employee has exited.