NHS Procurement: Urgent Direct Awards, Variation and Abandonment Post COVID-19

NHS bodies have been at the forefront of the Government's response to the unprecedented public health challenge presented by Covid-19. The health service has had to undertake procurement at a rapid pace, in particular for vital protective personal equipment ("PPE"), ventilators and testing kits. Equally, many extant procurements may have been overtaken by current demands.

This article explores the legal framework surrounding urgent direct awards and practical factors relevant to that process, including the use of accelerated timescales as an alternative. It also considers the options of variation and abandonment of existing procurement exercises. Lastly, we review emerging procurement practices of NHS bodies in response to Covid-19.

Urgent direct awards, the PCR 2015 and PPN 01/20:

The Cabinet Office has published two Procurement Policy Notes ("PPNs") following Covid-19. PPN 01/20 published on 18 March deals with procurement by central and local government, education institutions, NHS bodies and other contracting authorities under the Public Contracts Regulations 2015 ("PCR 2015") in the current crisis. This has been commented on in detail in previous articles.[1]

Regulation 32(2)(c) of the PCR 2015, implementing Article 32(2)(c) of Directive 2014/24/EU ("the Public Contracts Directive"), is likely to be one of the main legal bases for departing from the usual procurement processes within the NHS at this time. It allows for direct awards due to extreme urgency after a negotiated procedure, without prior publication by OJEU notice.

There are four cumulative requirements:

Genuine reasons for extreme urgency, such as immediate consequences of Covid-19 requiring response, including on public health grounds;
Unforeseeability of the trigger events;
Impossibility of complying with usual timescales, including accelerated procurement, competitive procedures with negotiation or a call-off; and
Lack of attributability/fault.

There is limited guidance on direct awards of this kind, and none dealing squarely with a comparable crisis, both in terms of the scale of public health complications and wider impact.

There are no reported domestic cases dealing with Regulation 32(2)(c) awards. At EU level, reliance on the equivalent provision has failed in Case 199/85 Commission v Italy (judgment of 10 March 1987) and, more recently, Case C-19/13 Ministero dell'Interno v Fastweb SpA (judgment of 11 September 2014) and Case C-187/16 European Commission v Austria (judgment of 23 March 2018). However, those cases concerned the construction of a waste recycling plant, supply of telecommunication services and the production of secure identity documents respectively. They are factually far-removed from the present situation and generally only repeat the broad point that "the unlawful direct award of contracts is the most serious breach of EU law in the field of public procurement" (FastWeb, para 43).

The effect of this line of authority is that the exception for urgent direct awards is to be construed strictly (see EU Public Procurement: Law and Practice at [A4.4D]). This mirrors Recital (50) to the Public Contracts Directive, which usefully adds:

"Contracting authorities relying on this exception should provide reasons why there are no reasonable alternatives or substitutes such as using alternative distribution channels, including outside the Member State of the contracting authority or considering functionally comparable works, supplies and services."

It is important to note that the PCR 2015 also make provision for urgent situations which fall short of necessitating direct awards. The minimum time limits vary and must be reviewed carefully (see Regulations 27(5), 28(10) and 29(10)). For procurements under the open procedure, timescales can be reduced to 15 days for receipt of tenders plus the minimum 10 days for the standstill period. While there is no express unforeseeability or no-fault requirement, a clear justification should be provided in the OJEU notice. PPN 01/20 provides a helpful sample at page 6. Practically, this route should be considered for all semi-urgent procurements following Covid-19.

The EU Commission has recently published a Communication (dated 1 April 2020) containing guidance on procurement in emergency situations.[2] The Communication makes it clear that there has been no change to the EU procurement regime. However, it points to the existing mechanisms within the relevant directives and gives healthcare specific examples of how these apply. The structure of the note suggests that contracting authorities should first use either the open or restricted procedures, with shortened timescales if required. The negotiated procedure without prior notification is reserved for cases of extreme urgency. The note helpfully confirms that the demands generated by the Covid-19 outbreak were unforeseeable:

"The specific needs for hospitals, and other health institutions to provide treatment, personal protection equipment, ventilators, additional beds, and additional intensive care and hospital infrastructure, including all the technical equipment could, certainly, not be foreseen and planned in advance, and thus constitute an unforeseeable event for the contracting authorities."

However, this does not mean that public authorities can use the negotiated procedure to meet all of their coronavirus-related needs. The Commission is clear that this procedure should only be used to fill urgent gaps while more sustainable solutions are developed. By way of example, an urgent need to scale up testing may justify use of the negotiated procedure, but long-term testing infrastructure would need to be procured using orthodox procurement methods (with shortened timescales if necessary).

The Communication also recognises that in a climate where there is an exceptional increase in demand for certain items, combined with significant disruption to supply chains, public buyers may need to be innovative in the way they engage with the market. Examples given by the Commission include using "hackathons" for solutions to equipment shortages and working closely with innovation ecosystems or entrepreneur's networks.

The key practical guidance that can be taken from the above case law and legislation seems to be accurately summarised in PPN 01/20. NHS bodies should limit their requirements to what is "absolutely necessary" when making any direct awards. This means distinguishing between immediate needs and longer terms needs. This is likely to be central to compliance with the requirements of extreme urgency and inability to comply with the usual timescales prescribed in Regulation 32(2)(c). Unforeseeability seems to be less of a concern given the scale of the current crisis and the EU Commission's official position, while lack of attributability or fault will be fact-specific. Keeping a written justification to the effect that the situation is covered by the PCR 2015 and setting out a reasoned position on each requirement is also vital.

NHS procurement post-Covid-19:

There has been considerable media coverage of procurement efforts by NHS bodies and the Government relating to PPE, testing kits, ventilators and video consultations. Despite these high activity levels, it appears that such procurement processes are being carried out on an ad-hoc basis at different levels, ranging from the national level such as by NHS England to local NHS bodies. These bodies must be assumed to be following the general guidance for 'contracting authorities' in PPN 01/20.

It is hoped more details become publicly available in due course, including in relation to the latest measures such as the new 5-pillar plan introduced on 2 April, which outlines the national effort to increase testing to 100,000 a day in England.[3] There is guidance published on 9 April for laboratories and other organisations wishing to support the testing effort, but this does not deal specifically with the procurement law implications of widening the supply chain.[4]

The area with the greatest activity in recent weeks has been the supply and distribution of PPE. Initially, NHS Improvement provided guidance to NHS bodies at local and regional level on 20 March. This dealt with delivery schedules and deployment of face masks, hand sanitisers and extra PPE kits.[5] Significantly, on 10 April, the Department of Health and Social Care has published a detailed plan dealing with levels of supply, deployment of PPE in different areas and ongoing procurement (see especially paras 1.64-1.69).[6] This explains that a new, dedicated unit has been set up to meet PPE needs to clinical specifications and while ensuring that the supply chain is secure, achieves best value and mitigates fraud risks. This new unit is staffed by procurement experts from the NHS Supply Chain in liaison with over 200 staff from the Government Commercial Function. It works in tandem with Foreign and Commonwealth Office teams across the world, while the Department of Trade has coordinated PPE sourcing, and an "open source approach" is followed.

Other examples of recent NHS procurement include:

The Government's invitation to businesses to support the NHS through the production and supply of ventilators and ventilators components on 16 March.[7] This must be read with careful guidance from the Medicines & Healthcare Regulatory Agency on the minimum and preferred options for clinically acceptable ventilators in UK hospitals published on 20 March (last updated on 10 April).[8]
Use of a confidential 48-hour tender to select 11 suppliers to provide online primary care consultations by video to help the NHS cope with unprecedented patient demand on 25 March. They were selected from a group of 33 trusted suppliers.[9]

Extant NHS procurements requiring variation or abandonment:

The normal rules on varying and abandoning procurements continue to apply. The main considerations will be whether abandoning a procurement is appropriate in all of the circumstances, and the key cases of Ryhurst Ltd v Whittington Health Trust [2020] EWHC 448 (TCC) and Amey Highways Limited v West Sussex County Council [2019] EWHC 1291 (TCC) continue to apply in the usual way. As set out in Ryhurst, where an NHS trust has genuine and rational reasons for deciding to abandon a public procurement exercise and has not breached EU principles of equal treatment, proportionality and transparency, and has not made a manifest error, then the abandonment of the procurement will be a proper course of action to take. That may well be an appropriate course of action in certain circumstances.

An alternative would be to consider whether the procurement should be varied. As a matter of practicality, variations should be considered to the timetable and to the structure of the procurement, as appropriate for the developing circumstances, remaining within the usual rules for doing so.

Concluding remarks:

On the question of urgent procurements, the clear message from the UK Government and the European Commission is that the procurement regime still applies and that public buyers should look to use existing flexibilities within it. It would be prudent to use amended timescales first and reserve negotiated procurement without prior notification for cases of genuine urgency. This should help ensure that direct awards are limited to situations where they are truly filling a gap.

NHS bodies, in tandem with other Government departments, are in the process of developing an increasingly coordinated approach for sourcing of essential supplies of PPE, testing kits, ventilators and other equipment needed to respond to the most pressing demands raised by Covid-19.

An area of concern is the handling of extant and longer term procurements. This is challenging at a time when resources are stretched. However, options including variation and, in some cases, abandonment due to changing circumstances require careful and prompt consideration.

In all situations, record-keeping is critical. NHS bodies and others involved in procurement should document decision-making processes and their reasoning fully and contemporaneously.

Related articles:

'Important updates to PPN 02/20: Procurement guidance for contracting authorities' (09.04.2020):

https://www.39essex.com/important-updates-to-ppn-02-20-procurement-guidance-for-contracting-authorities/

'Local Authority Commercial Contracts and Procurement in a Covid-19 World' (25.03.2020):

https://www.39essex.com/local-authority-commercial-contracts-and-procurement-in-a-covid-19-world/

'NHS: Service change and development in the time of Coronavirus' (25.03.2020):

https://www.39essex.com/nhs-service-change-and-development-in-the-time-of-coronavirus/

'State aid and COVID-19' (24.03.2020):

https://www.39essex.com/state-aid-and-covid-19/

'Fraud Control in Emergency Management: Covid-19 Guidance' (27.03.2020):

https://www.39essex.com/fraud-control-in-emergency-management-covid-19-guidance/

[1] See https://www.39essex.com/local-authority-commercial-contracts-and-procurement-in-a-covid-19-world/ and https://www.39essex.com/important-updates-to-ppn-02-20-procurement-guidance-for-contracting-authorities/.