Naked Law

Commercial in confidence? Not in the public sector...

A letter from the Prime Minister dated 29 May 2010 confirmed the Coalition's commitments on transparency within the central government procurement process.  This was followed earlier this month by a new OGC procurement policy note for central government departments - see here.

The policy aim is to give the public greater access to information on public spending so that public bodies can be held to account where money is not being used in cost effective manner. As a result, under the PPN, as of now all new ICT contracts must be published online by the relevant department in as full detail as possible - provided of course such contracts are not subject to confidentiality clauses. So far so good.

More strikingly, departments "should avoid including confidentiality clauses in current and all future ICT contracts".  Although there are limited exceptions on when contractual text can be redacted (eg. national security or personal privacy, IT security and prevention of fraud), the PPN does not exclude from publication commercially sensitive information such as pricing, payment mechanisms, confidential processes or solution architecture.

The PPN says that further guidance will be provided on redactions and exemptions, transparency clauses for contracts and the form of publication.  Clearly automatic publication of commercially sensitive information could have a dramatic effect on suppliers to central governement, the content of their bids and indeed their willingness to bid in the first place.  Whether this is a feasible approach remains to be seen.  It is also unclear how a lack of contractual confidentiality obligations fits with departments' obligations under the procurement regulations and common law.

Most Naked Lawyers suspect that the effects have not been entirely thought through and we expect to see some significant watering down of the concept of full transparency.  We'd be interested to hear the views of any public sector IT suppliers out there.

Other changes that are soon to be implemented include:

• the publication on a single website of all new tender documents for contracts of more than £10,000 released after September 2010; and
• all new contracts (ie. non-ICT) to be published in full from January 2011.

Guidance on procurement transparency for local government and the wider public sector is expected soon but will be handled seperately.

Sky high settlement paid by EDS

Hewlett Packard (“HP”) and British Sky Broadcasting (“BSkyB”) have finally concluded one of the most expensive pieces of litigation ever. HP has agreed to pay BSkyB a settlement of £318m after the court found that HP’s IT services arm (EDS) made fraudulent and negligent misrepresentations to BSkyB in order to win a multi-million pound outsourcing contract (see our earlier post for more detail).

There are many lessons that can be learnt from the case (see here), but it is worth noting in particular that in this case the contract did not document the detail of the project work to be carried out by EDS. If it had done, BSkyB would have had a much more straightforward claim for breach of contract - it would not have had to construct a complex case alleging fraudulent and negligent misstatement and the litigation would almost certainly have been less expensive and less time-consuming. So, when dealing with suppliers, do ensure that any specific requirements, including timeframes for delivery, are expressly set out in the contract...

New negotiating guide for the ICT Services Model Agreement

The OGC has published a new negotiating guide for the ICT Services Model Agreement, written in collaboration with Partnerships UK and Intellect (the trade association of the UK technology industry).

The guide is designed to assist those negotiating public sector ICT contracts by considering in more detail some of the key provisions in the Model Agreement which are heavily negotiated. The first edition only covers the following four issues:

due diligence (the contractor's responsibility to ensure the operating environment is suitable for the services);

supply chain rights (provisions governing the public authority's control over sub-contractors);

termination at the public authority's convenience; and

limits of liability and indemnities.

 

Whilst these provisions are often problematic, there are other issues not covered in the guide that would also benefit from balanced guidance (because of the amount of time usually spent on them in contract negotiations). These include:

the specification (for example, the relationship between the requirements and the proposal document);

service levels;

how the payment schedules should be structured; and

benchmarking/gain-sharing.

The intention is for the guide to be updated regularly, so we may see some of these topics included in future editions.

It is also not clear who the guide is actually aimed at. Lawyers are already likely to be well aware of the issues addressed and will turn to the existing OGC guidance for the full detail, whereas because of its length, the guide is probably still too long for project managers to read through before contacting the lawyers for advice.

The guide can be accessed here (you will need to register with Partnerships UK before being allowed to view the document).

Fred: Keene to find out

We have a lot of questions from public authorities and suppliers about the scope of the 'commercial interests' exemption under the Freedom of Information Act, particularly in relation to tenders.  A recent Information Tribunal judgment (Fred Keene v Central Office of Information) throws a little more light on things. Fred's business had been one of the unsuccessful bidders when the COI had invited tenders from reprographics businesses several years ago. In January 2007 Fred made a request for information to the COI under the FOIA regarding the selection process, in response to which the COI supplied some information but withheld the crucial evaluation and scoring details.

The COI relied on the Part II FOIA commercial exemption that disclosure would be likely to prejudice the commercial interests of any person, including the public authority holding the information. They argued that low scores or negative comments about the bidding businesses would damage their commercial interests by adversely affecting their reputation, and further that the commercial interests of COI would be damaged as disclosure of the disputed information would deter businesses from tendering, or providing adequate information, in the future.

The Tribunal found that:

• the meaning of 'likely to prejudice' was that there would be a real and significant risk, or 'weighty chance', of detriment or damage to the commercial interests of a party;
• the commercial interests of the bidding business would not be prejudiced by disclosure of the information as there was no commercially sensitive information or performance related comment in the evaluation information - it was held that although an application form was described as 'not great' and the applicant 'would not be able to handle COI's business', these comments were about entirely objective matters and therefore did not reflect negative opinion; and
• the commercial interests of COI would not be prejudiced as the COI had established tendering procedures that businesses would have to abide by, and most businesses were aware that as a public body the COI was subject to FOIA disclosure obligations.

As the test had not been met the COI was obliged to disclose the disputed information. Fred wins. Go Fred!

The court considered as an aside that the public interest in maintaining the exception did not outweigh the 'very strong public interest in promoting transparency and accountability in relation to tendering and procurement decisions of the COI and its expenditure of public funds'. Always good to know.

Costs driven up in Highways procurement

We frequently see both the costs and timescales of public sector procurements extended beyond the original intentions of the relevant organisations.  This can be down to a number of factors, and generally a combination of several: over-ambitious timescales (often driven by organisational or national politics); lack of sufficient planning for advisors' fees, be they lawyers, financial advisors or technical consultants; the ever present risk of scope creep; and protracted negotiations - to name but a few.

But still, the Highways Agency's telecoms procurement (late by 3 years, over-budget by £12.5m in advisors' fees) seems an extreme example.  The Public Accounts Committee's report concludes that "Most of the additional time and cost was incurred in meeting the Agency’s requirements for high quality bid documents" - an admirable aim in itself, but the PAC also found that:

"The Agency never had a clear idea about the time and cost needed to complete the procurement. In every updated forecast, the Agency’s revised budget and timetable were optimistic, often by considerable margins."

"The Agency did not deploy effective controls over the work of its advisers".

So a salutary lesson for public sector procurement managers.  Inevitably, and rightly, a lot of time is often spent working out an organisation's requirements for the goods or services to be procured.  However, taking time to properly scope advisor requirements and to build good working relationships with them can be equally important - both in terms of budgeting for and managing likely costs and in making use of their expertise in sense-checking the proposed procurement structure and timetable.

IT outsourcing: the future is green?

Much to the envy of my fellow Naked Lawyers, last Friday I was fortunate to lunch at Claridges. Not solely, I might add, so I could sample the rather good food (asparagus, duck, chocolate parfait) but also because the IT industry trade association Intellect was holding one of its Industry Leadership lunches there. I was pleasantly surprised by the mix of multinational and much smaller suppliers that were represented, along with the usual raft of consultants and legal and financial advisors.

After lunch there was a talk by Guy Hains, President and CEO of the European Group for CSC who spoke about recent trends in IT outsourcing. I found the following points particularly interesting:

• the feeling that the industry should put together some kind of guidance or code dealing with the transfer of outsourcing deals from one supplier to another (eg at the end of the first supplier’s term). This is an area fraught with difficulty, not least because contractually the purchaser and original supplier are usually stuck with whatever they agreed at the outset of the project, at a time when (generally) they are friends and the end of the relationship seems too far off to worry about. I am sure some industry consensus on how to manage the handover from the outgoing to incoming supplier would not go amiss.
• the indication that purchasers are becoming more concerned about green issues including the environmental impact of their IT kit. Guy’s view was that suppliers need to be addressing this and seeking to drive down the costs of greener solutions, or risk being left behind. Certainly the introduction of the WEEE directive and other environmental protection legislation means that both purchasers and suppliers have an interest in reducing the negative environmental effects of their IT – but of course purchasers will not want to pay more for this in the long run.

PUK "will make amends ere long"

I've just received email notification that Partnerships UK has published the revised guidance on the standard OGC IT contract (see here, though you'll need to register first).  See my previous post on the list of changes PUK published recently.  From a quick glance at the latest version, there don't appear to have been major revisions in the past couple of weeks, though it's only available as a pdf so I haven't been able to run a direct comparison.

PUK's email says that they "plan to implement the changes within the next week and [that I] ... will be provided with a further notification when Version 2.1 of the Guidance has been published on the website".