Edenred (UK Group) Ltd v HM Treasury and Others

Hearing dates: 11 & 12 March 2015

The Chancellor of the High Court (Sir Terence Etherton):

This is an appeal by Edenred UK Group Limited ("Edenred") against the decision of Andrews J dated 22 January 2015 dismissing part of the claim and refusing to lift the stay on linked judicial review proceedings.

The issue before Andrews J and on this appeal is whether the way in which it has been decided to deliver the new government policy of Tax-Free Childcare ("TFC") — with a value of approximately £160 million over five years — is lawful under domestic and EU public procurement legislation.

The Government's intention is that Her Majesty's Revenue and Customs ("HMRC") will have the overall responsibility for the delivery of TFC, and that HMRC will utilise the services of the third respondent, National Savings & Investments ("NS&I"), who will provide TFC by amendments to its outsourcing contract with Atos IT Services UK Limited ("Atos"). The Government has not invited any competitive tenders for the delivery of TFC. Andrews J dismissed Edenred's claim that those proposed arrangements are in breach of the Public Contracts Regulations 2006 (SI 2006/5) ("the 2006 Regulations") and in breach of Article 56 of the Treaty on the Functioning of the European Union ("Article 56 TFEU").

Background

A comprehensive account of the relevant background may be found in the judgment of Andrews J. The following is sufficient for the purpose of this appeal.

The parties

Edenred is one of the largest commercial childcare voucher providers (CVPs) in the UK. CVPs play a role in the existing government childcare support scheme — Employer Supported Childcare ("ESC"). ESC is provided through employers, who give employees, as part of their remuneration packages, money to pay for childcare, funded by a tax break. The employers have usually opted to provide the money in the form of vouchers which parents can redeem with childcare providers. CVPs are not a necessary element of ESC, but many employers engage them to administer the schemes and issue vouchers on their behalf. CVPs receive the money from the employer, allocate the correct amount to each relevant employee, issue vouchers in that amount to the parents and make payments to the childcare providers against production of the vouchers. Since 2005, when the ESC tax break was introduced, a thriving CVP market has developed.

Edenred runs its ESC business through its subsidiary, Childcare Vouchers Ltd, which has 15,600 employer customers and provides childcare vouchers for about 170,000 parents each month. Edenred is a founder member of the Childcare Voucher Providers Association ("CVPA"), a trade association set up in 2011 to represent the interests of CVPs in the UK.

Edenred is part of the multinational Edenred Group, which has a presence in 41 countries worldwide. Edenred's French parent has a market capitalisation of about €5.3 billion and is listed on the NYSE Euronext Paris. The Edenred Group had a total revenue of €1 billion with a net profit of €171 million in the year ending 31 December 2013. Edenred itself had a profit of almost £10 million in the same year.

The three respondents are all parts of the executive for which the Chancellor of the Exchequer ultimately has responsibility to Parliament. The first respondent, Her Majesty's Treasury ("HMT"), is the government's economic and finance ministry.

The second respondents, the Commissioners for Her Majesty's Revenue and Customs, are appointed by the Queen and oversee the day to day running of HMRC, which is a non-ministerial department. In the exercise of their functions the Commissioners must comply with any directions of a general nature given to them by HMT.

NS&I is also a non-ministerial department and became an executive agency of the Chancellor of the Exchequer on 1 July 1996. Its parent department is HMT. Its chief executive is the Director of Savings, whose functions and powers are derived from statute.

NS&I is one of the largest savings organisations in the UK. It is the Government's retail debt financing arm, providing financing by issuing and selling retail savings and investment products to the public, with the overall aim of helping to reduce the cost to the taxpayer of government borrowing. NS&I has a broad power to provide services to any public body under section 113 of the Financial Services Act 2012. This enables other government departments to benefit from NS&I's existing expertise in taking, holding and transferring money securely to large numbers of people, as well as from the efficiencies associated with NS&I's operational activities. NS&I refers to this type of arrangement as "business to business" ("B2B") services. NS&I's B2B work has included Courts Funds Office ("CFO") services for the Ministry of Justice and the Equitable Life Payment Scheme ("ELPS") for HMT. The arrangements between NS&I and each of those other departments in relation to such services is governed by a memorandum of understanding as is usual practice between government departments. NS&I also competes for customers with other banks in the open market.

Following a public tender procedure, NS&I outsourced all its back office operations to Siemens IT Solutions and Services ("SIS") in 1999. Towards the end of that contract Atos purchased SIS. In 2011, the outsourcing contract was advertised in the Official Journal of the European Union ("the OJEU") and a tender was organised, from which Atos emerged as the winning bidder."

The OJEU notice, published on 22 November 2011 ("the Contract Notice"), stated that the contract would be for business process outsourcing services and application services and would be for an initial period of eight years. It indicated that the total value of the outsourcing contract would be between £1.25 billion and £2 billion and described the nature of the contract as follows:

"NS&I outsourced its operational services in 1999 and is now seeking to retender these operational services, including all processing of customer interactions and servicing (eg sales, after sales management and payments including via telephone, internet and mail); service management; IT management 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. In addition NS&I now delivers similar operational services (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 other non-departmental public bodies) and by local authorities"

The Contract Notice set out, by reference to "Common Procurement Vocabulary", all the operations to be outsourced.

The new outsourcing contract was procured on the basis that a single provider would act as prime contractor, which, with any necessary assistance from sub-contractors, had to be able to support the full scope of NS&I's services, including future B2B services, and therefore not only had to be able to provide the back office functions relating to NS&I's core savings and investment business but also the necessary resources to support the roll-out of B2B services to other government departments. One of the pre-qualifying conditions to bid for the outsourcing contract was an annual turnover of at least £1 billion.

The outsourcing contract with Atos was signed on 20 May 2013, with a commencement date of 1 April 2014 ("the Atos contract") and an expected charge for the core retail service of £660 million. Atos became responsible for delivering all of NS&I's operational services, including transaction management, customer service, printing, accounting, IT development and management. NS&I has retained a core body of 170 civil servants who, together with the Director of Savings, have responsibility for strategy, branding, pricing and policy decisions (subject to Ministerial approval).

The Atos contract award notice stated:

"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, resulting in significant growth of the outsourced operational services."

The Atos contract further provided in clause 2.1 of the "B2B General Obligations" schedule, schedule 2.11:

"Throughout the Term, the Parties shall actively seek and identify potential opportunities ("B2B Opportunities") beyond delivery of the Services by the Provider to the Director and to Existing Service Recipients, and to extend the Services to further Service Recipients...