Edenred (UK Group) Ltd and Another v HM Treasury and Others

Heard on 13 and 14 May 2015

(with whom Lord Neuberger, Lord Mance, Lord Sumption and Lord Carnwath agree)

This is a challenge to the decision of 29 July 2014 by HM Treasury ("HMT") to use National Savings and Investments ("NS&I") to deliver the Government policy of Tax-free Childcare ("TFC"), which I describe below (para 16). TFC is designed to replace the policy of employer-supported childcare ("ESC") under which the Government gives relief from tax and national insurance contributions to employers which support their employees with the cost of childcare. The challengers are (i) Edenred (UK Group) Ltd ("Edenred") which provides services to employers who operate the ESC scheme on behalf of their employees and (ii) the Childcare Voucher Providers Association ("CVPA") which is a trade association for providers of childcare vouchers.

NS&I is a non-ministerial Government department and executive agency of the Chancellor of the Exchequer. It is a retail savings and investments organisation which offers its products to United Kingdom customers. Its products are designed to enable the Government to borrow at a reasonable cost and in 2011 it had invested assets of about £105 billion from about 26m customers. Since 2011 it has obtained contributions towards its running costs by using its substantial infrastructure to process payments, manage accounts and provide associated support functions to other public bodies. Section 113 of the Financial Services Act 2012 gave NS&I a general power to enter into arrangements with public bodies to provide such services.

NS&I outsourced its operational services and transferred its operational staff to a private sector provider in 1999. Its current outsourcing contract, which it entered into in 2013 and which has operated since April 2014, is with Atos IT Services Ltd ("Atos"). The Director of Savings, who is NS&I's chief executive, and its other civil servants are policy-makers for the organisation but its operations, both dealing with customers and back office functions, including customer service, transaction management, printing, accounting, IT development and management, are provided by employees of Atos. Those services involve the use of Atos equipment and of premises leased or owned by Atos but those premises and equipment will be transferred to NS&I on termination of the arrangement.

To allow NS&I to administer TFC it is necessary to amend the contract between NS&I and Atos. The Atos contract is not subject to this challeng e but its proposed modification is. The challenge in summary is (i) that the proposed amendment to the Atos contract would be contrary to European Union procurement law, and (ii) that as a result the decision to use NS&I to deliver TFC is unlawful. The applicants seek relief in the form of declarations that the respondents' decisions regarding the delivery of TFC are unlawful and an order restraining the respondents from giving effect to the modification of the Atos contract if their challenge is successful. In the meantime, the respondents are prevented by interim order from implementing the provision of services under TFC until further order.

The challenge came before this court as an application for permission to appeal. As the matter required a prompt determination, the court heard both the application for permission to appeal and also the substantive appeal at the same time.

At the heart of the challenge is the assertion that the proposed amendment of the contract between NS&I and Atos would involve the direct award of a valuable public contract without conducting a tender procedure contrary to the requirements of the EU procurement regime that was implemented by the Public Contracts Regulations 2006 (SI 2006/5) ("the 2006 Regulations") and their successor regulations, the Public Contracts Regulations 2015 (SI 2015/102) ("the 2015 Regulations"), which implemented Directive 2014/24/EU ("the 2014 Directive"). The latter regulations came into force on 26 February 2015 (regulation 1(2)) after the challenged decision had been made and do not affect the validity of the Atos contract itself (regulation 118(5)), but regulation 72 of the 2015 Regulations, which deals with modification of contracts during their term, will govern the amendment of the Atos contract if the respondents proceed with that amendment. The applicants also assert more widely that the use by public bodies of contracts, such as that between NS&I and Atos, which provide both for outsourcing and for the extension of the outsourced services to other public bodies in future, would place the United Kingdom in breach of its obligations under article 56 of the Treaty on the Functioning of the European Union ("the TFEU").

In July 2011 NS&I commenced procurement of a further contract for the outsourcing of its operational services. On 11 July 2011 HMT and NS&I held an industry day at the Royal Geographical Society at which, among others, Lord Sassoon, commercial secretary at HMT and Jane Platt, NS&I's CEO, presented to interested parties their proposals for the future of NS&I, including the business to business services which I discuss below, and the re-tender of the outsourcing contract.

On 22 November 2011 NS&I as contracting authority published a notice in the Official Journal of the European Union (2011) (S 224–363697). The notice advertised "UK-London: banking services" and the contracting authority gave "outsource services" as the title to the contract. It explained that the contracting authority was purchasing on behalf of other contracting authorities and that the nature of the services was "computer and related services". In its short description of the contract the notice described the role of NS&I and explained that it was now seeking to retender its operational services, which it described as:

"including all processing of customer interactions and servicing (eg sales, after sales management and payments including via telephone, internet and mail); service management; IT development and implementation; and other services (eg complaint handling, channel management, customer management, print and document management, customer market research and analysis, campaign management, compliance, management information etc), and other related ancillary services that support the business operation of NS&I."

The text went on in a passage which is of significance in this appeal to describe NS&I's business to business services (which it called "B2B services"):

"In addition NS&I now delivers similar operational services (so called B2B services) to other public sector organisations. We intend to expand this B2B service during the lifetime of the contract to deliver to other organisations, potentially resulting in significant growth of the outsourced operational services. NS&I intends to structure the contract so that it may be used by other central government departments (including their executive agencies and non-departmental public bodies) and by local authorities. NS&I also intends to permit the contractor to make the services provided under the contract available to private sector entities provided that this does not affect the provision of service to NS&I."

The notice listed 50 entries from the common procurement vocabulary.

In section II.2.1 the notice described the quantity or scope of the contract, which was to run for 96 months from the award of the contract and would be extendable for a further 36 months. It described the average estimated annual volumes for its 26m customers (excluding B2B services) as £14–15 billion of receipts and £12 billion of payments, involving 55m transactions and 4m telephone calls. It described the estimated contract range and value in these terms:

"Contract range up to approximately 2,000,000.000 GBP, with a likely contract range of approximately 1,250,000,000 and 150,000,000 GBP, depending upon the uptake of B2B services.

Estimated value excluding VAT:

Range: between 1,250,000,000 and 2,000,000,000 GBP."

As the notice stated, NS&I adopted the competitive dialogue procedure under regulation 18 of the 2006 Regulations and the award criterion was the most economically advantageous tender in terms of the criteria stated in the invitation to tender and other relevant descriptive documents.

NS&I issued a prospectus in November 2011 to provide potential bidders with the information they needed to submit a comprehensive electronic pre-qualification questionnaire ("PQQ"). In that document NS&I explained that it had only 140 employed staff and that the workforce of 1,750 who implemented its plans worked for its outsource partner. It flagged up the importance of B2B services as a contributor to its running costs. It stated that its future strategy included implementing product change and developing and delivering new B2B opportunities. It also set out the three stages of the procurement process: (i) the PQQ to identify a maximum of five bidders which had the needed experience, financial strength and capability to deliver the required services, (ii) the invitation to submit an outline proposal to select a maximum of three bidders who would receive a full set of requirements, draft contract and other supporting material, and (iii) the invitation to tender ("ITT") from which it would select the provider that offered...