CMA gives Home Office procurements the backscatter treatment

On 1 March 2022, the Competition and Markets Authority ("CMA") opened an investigation into suspected anti-competitive conduct in connection with UK Home Office procurement processes for contracts to supply services at immigration removal centres at Heathrow and Derwentside. The investigation is a reminder to suppliers that it is important to be aware of the need to comply with competition law when participating in public procurement processes. 

Key takeaways

• The investigation demonstrates the CMA's continued focus on investigating suspected bid-rigging behaviour.
• Bidders for public contracts must be aware of both the obligations on contracting authorities under public procurement law and their own obligations under competition law.

Key principles governing public procurement in the UK

Public procurement law regulates the purchasing of contracts for goods, works and services by public sector bodies such as government departments, NHS trusts and local authorities, as well as certain private sector entities engaged in defined utility activities.

There are three key pieces of public procurement legislation in England, Wales and Northern Ireland: The Public Contracts Regulations 2015, The Utilities Contracts Regulations 2016 and The Concessions Contracts Regulations 2016 (together, the "Regulations").  Separate, albeit similar, legislation applies in Scotland.  

The Regulations stipulate a number of formalities with respect to the advertising and awarding of public sector contracts with a value exceeding specific financial thresholds.  Those thresholds vary according to the type of contract, but are relatively low.  

The interpretation and application of the Regulations is also underpinned by a number of overarching legal principles, including transparency, equal treatment and non-discrimination, and proportionality.  In summary, the Regulations are intended to encourage free and open competition for public sector contracts and value for money for taxpayers.

If the Regulations apply, the contract opportunity must be advertised by the contracting authority via the Find a Tender Service, an online portal, with a description of the procurement's requirements and invitation for expressions of interest within specific timescales. The contracting authority must then follow one of the competitive award procedures provided for under the applicable Regulations. 

Ultimately, the contracting authority must select the "most economically advantageous tender" on the basis of the price or cost of the tender, or on the basis of the best price-quality ratio assessed according to criteria linked to the subject matter of the contract. 

Risks of non-compliance with public procurement rules

Contracting authorities are subject to statutory obligations to comply with the Regulations. Bidders for public contracts have the ability to bring proceedings against contracting authorities where: 

• there has been a breach of the Regulations; and
• the bidder has suffered loss as a result of that breach.

The consequences of a successful legal challenge typically turn on whether or not the contract has been concluded when the claim is brought.  If the challenge is brought before the contract has been concluded, there is scope of the claimant to obtain an order from the Court requiring a decision taken by the contracting authority to be set aside and this can lead to the procurement being rewound.  There is also scope for the claimant to obtain damages, which are typically calculated on a loss of opportunity basis.  Finally, in some circumstances, the Court can even make a special order, known as a declaration of ineffectiveness, which has the effect of declaring a contract that has been concluded null and void.

Obligations on bidders 

It is well-understood that contracting authorities must comply with the Regulations when awarding public contracts.  However, bidders for public contracts are also subject to separate legal obligations when participating in procurement processes.  There are three points to highlight.

First, contracting authorities are required to apply certain mandatory and discretionary exclusion criteria to bidders.  In particular, contracting authorities must disqualify bidders that have convictions for certain types of offences (e.g., bribery, corruption fraud, etc.) and may disqualify bidders that have been in certain situations, such as evidence that the bidder has entered into anticompetitive agreements.  Therefore, having effective compliance policies and processes in place is vital to ensuring that bidders are able to participate in public procurement exercises.

Second, contracting authorities typically take a number of steps to ensure an open and effective competitive process during procurement exercises.  In this regard, procurement documents typically set out a number of rules which are intended to ensure that there is no collusion between bidders.  Failure to comply with those rules can also lead to bidders being disqualified from procurement exercises.

Third, irrespective of what the procurement documents say, bidders must comply with competition law when participating in procurement exercises.  The CMA can take enforcement action against firms that fail to comply with competition law in procurement exercises.  This can lead to very significant fines and, in some cases, criminal liability for the individuals involved in the anticompetitive conduct.

Bid-rigging in public procurement exercises

A key area of competition law compliance risk in the context of public procurement exercises is bid-rigging.  This is where bidders collude with one another with a view to fixing or improperly influencing the outcome of a competitive bidding process.  This can take many forms including: 

• formal and informal agreements between competitors in relation to whether or not they will be participating in specific bidding processes;
• formal and informal agreements between competitors in relation to the terms and/or prices they intend to submit in specific bidding processes; and
• sophisticated arrangements between competitors which seek to determine the allocation of contracts as between each other during a particular period of time (e.g., based on volume or value).

In the UK, bid-rigging may be a criminal offence.

The CMA has shown a heightened interest in investigating bid-rigging conduct in recent years.  This is evidenced by the following compliance campaigns, enforcement activity and consultation responses:

• In 2017, the CMA partnered with Spend Network to develop a tool designed to identify "unusual bidder behaviour and pricing patterns which may indicate that bid-rigging has taken place". Alongside the tool, the CMA also published guidance and an e-learning module on bid-rigging in the context of procurement.
• In March 2019, the CMA fined five office fit-out firms for engaging in bid-rigging in private tender processes in breach of competition law (see our March 2019 newsletter).
• More recently, the CMA highlighted bid-rigging as a key risk in public procurement processes in its 2021 response to the UK Government's Transforming Public Procurement Green Paper (see our December 2020 briefing).

Bidders for public contracts should ensure that they have effective compliance programmes in place and provide training for staff who are involved in procurement processes to ensure they understand the key principles of competition law. 

With thanks to Louisa Northover of Ashurst for her contribution.