Edenred (UK Group) Limited and another v Her Majesty’s Treasury and others

A modification of a public contract does not considerably extend its scope merely because it increases the level of services supplied. Where the original notice and procurement documents envisaged the expansion, committed the contractor to undertake it and required the necessary resources, the court must determine whether the additional services were covered by the contract as procured.

Under regulation 72 of the Public Contracts Regulations 2015, the monetary value of a modification is not decisive. The court must examine the nature, scale and scope disclosed by the procurement documents. An arrangement between public bodies does not become a public services contract with an outsourced provider merely because that provider performs the operational work.

HM Treasury decided that National Savings and Investments (“NS&I”) would administer tax-free childcare accounts for HM Revenue and Customs. NS&I proposed to obtain the necessary operational services through a variation of its existing outsourcing contract with Atos IT Services Ltd. That contract had been procured following an advertised competitive dialogue which contemplated substantial expansion of NS&I’s services to other public bodies.

The appellants, a childcare-voucher provider and its trade association, alleged that the variation amounted to the direct award of a valuable public contract without competition. Andrews J dismissed their consolidated contractual and judicial review claims. The Court of Appeal dismissed their appeal in [2015] EWCA Civ 326.

The Supreme Court considered whether the proposed variation was a substantial modification under regulation 72 of the Public Contracts Regulations 2015, whether it was authorised by a sufficiently specific review clause, and whether the arrangements were in substance a public services contract between HMRC and Atos.

1. Permission to appeal granted, but appeal dismissed. Lord Hodge, with whom Lord Neuberger, Lord Mance, Lord Sumption and Lord Carnwath agreed, held that the proposed amendment would not considerably extend the scope of the Atos contract. It therefore was not a substantial modification under regulation 72(1)(e) and (8)(d) of the Public Contracts Regulations 2015.

2. A modification falls within the procurement regime as the award of a new contract if it materially varies an existing public contract. Whether services were initially covered requires examination of the OJEU notice and the other procurement documents, including the contract issued with the invitation to tender. The original procurement expressly contemplated expansion of NS&I’s operational and business-to-business services within an advertised financial range. It required the successful contractor to possess the resources needed for that expansion.

3. A prohibition on extending a contract to services not initially covered does not prevent an increased level of contracted services where the advertised procurement envisaged the expansion, committed the contractor to perform it and required the necessary capacity. The proposed childcare-account services remained essentially the same kind of banking, accounting, payment and ancillary operational services. Contractual controls also preserved the allocation of risk and restricted any increase in the contractor’s profit margin. The cases concerning territorially or functionally separate additional works were distinguishable.

4. The regulation 72(1)(a) ground was unnecessary to the result. Lord Hodge nevertheless inclined to the view that the contractual restrictions were sufficiently clear, precise and unequivocal. Initial procurement documents in a competitive dialogue include documents supplied to the selected bidders, including proposed contractual conditions. He did not finally decide whether review clauses of this kind fell within regulation 72(1)(a), because their permissible nature was not acte clair.

5. The alternative contention that HMRC and Atos were in substance parties to a public services contract failed. NS&I could not be disregarded: its arrangement with HMRC and its enforceable contract with Atos were legally distinct. Section 16(2) of the Childcare Payments Act 2014 limited NS&I’s power by requiring an arrangement with HMRC. It did not convert their memorandum of understanding into a legally enforceable contract.

6. No issue under article 56 of the TFEU or as to remedies arose. The interim order preventing implementation of the childcare scheme was set aside.

1. United Kingdom Supreme Court: Permission to appeal was granted, but the appeal was dismissed unanimously. The interim order preventing implementation of the tax-free childcare scheme was set aside.
2. Court of Appeal: The appeal was dismissed in [2015] EWCA Civ 326. The court held that the proposed contract amendment and memorandum of understanding would not be unlawful.
3. High Court: Andrews J dismissed the expedited grounds of claim. She held that the amendment complied with EU procurement law, that the proposed interdepartmental arrangements were not a public services contract or subject to article 56 TFEU, and that loss had not been established.