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Edenred (Group UK) Limited v Her Majesty’s Treasury and others [2015] UKSC 45
The Supreme Court has today handed down judgment in the public procurement case of Edenred (Group UK) Limited v Her Majesty’s Treasury and others upholding the decision of Andrews J and the Court of Appeal’s decision, which had each also held in favour of the Government (read the first instance decision here and the court of Appeal decision).
This was an appeal in the expedited Edenred proceedings on whether the way in which the Government’s flagship policy of Tax-Free Childcare (TFC) is to be delivered is lawful under domestic and EU public procurement legislation. It is the first case on the question of what constitutes a “material variation” of a public contract to reach the UK Supreme Court. It is also the first UK case to be decided under the new Public Contracts Regulations 2015 (SI 2015/102) (PCR 2015).
The operational and back office functions of NS&I, an executive agency of the Chancellor, are carried out under an outsourcing contract, currently held by Atos. That contract was procured in April 2014 and was not itself under challenge. TFC is to be delivered NS&I working with HMRC pursuant to s.16 of the Childcare Payments Act 2014 (CPA). To be able to do this NS&I has to use its outsourcing contract, modified to add the TFC services. A challenge to the Government-internal memorandum of understanding (MoU) between HMRC and NS&I (whereby it was argued that that MoU was itself a public contract) had failed below and was not pursued on appeal to the Supreme Court. The Appellants’ appeal focussed principally on their argument that the amendments required to the Atos outsourcing contract would be an impermissible material variation, being contrary to the CJEU’s pressetext case law and Regulation 72 PCR 2015.
Lord Hodge, with whom Lord Neuberger, Lord Mance, Lord Sumption and Lord Carnwath concurred, held that the amendments required to the outsourcing contract with Atos to include the TFC work will not amount to a material variation of that public contract as the modifications to the contract that enable NS&I to provide the TFC services will not “considerably extend” the scope of that contract in terms of regulation 72(8) PCR 2015 Regulations so that they do not involve “substantial” modifications under Regulation 72(1)(e) PCR 2015.
The Court distinguished Commission v Germany (C-160/08) [2010] ECR I-3713, Commission v France (C-340/02) [2004] ECR I-9845 and Commission v Spain (C-423/07) [2010] ECR I-3429 and held that the prohibition against modifying a contract to encompass services not initially covered does not prevent the extension of the contracted services beyond the level of services provided at the time of the initial contract if the advertised initial contract and related procurement documents envisaged such expansion of services, committed the economic operator to undertake them and required it to have the resources to do so.
The Supreme Court therefore held there was no breach of the Public Contracts Regulations or Article 56 TFEU.
The Court also inclined to the view that the amendments were further justified pursuant to “clear, precise and unequivocal” review clauses within the meaning of Regulation 72(1)(a) PCR 2015, but that the point was not acte clair. However, in view of the finding on Regulations 72(1)(e) and (8) (above) it was not necessary to decide the point and no reference to the CJEU was required.
An alternative argument that a separate public contract had been created between HMRC and NS&I by reason of s. 16 CPA was also dismissed by the Court.
Philip Moser QC, Ewan West and Anneliese Blackwood appeared on behalf of Her Majesty’s Treasury, Her Majesty’s Revenue and Customs and NS&I, instructed by the Government Legal Department.
Please click to read the full Edenred v HMTreasury Supreme Court judgment.