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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Edenred (UK Group) Ltd v Her Majesty's Treasury & Ors [2015] EWHC 90 (QB) (22 January 2015) URL: https://www.bailii.org/ew/cases/EWHC/QB/2015/90.html Cite as: [2015] EWHC 90 (QB) |
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
EDENRED (UK GROUP) LIMITED |
Claimant |
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| - and - |
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| (1) HER MAJESTY'S TREASURY (2) HER MAJESTY'S COMMISSIONERS FOR REVENUE AND CUSTOMS (3) NATIONAL SAVINGS AND INVESTMENTS |
Defendants |
____________________
Philip Moser QC, Ewan West and Anneliese Blackwood (instructed by the Treasury Solicitor) for the Defendants
Hearing dates: 25- 30 November 2014
____________________
Crown Copyright ©
Mrs Justice Andrews:
Edenred")
is one of the four largest CVPs in the UK; one of its competitors, Computershare, claims to be the largest, but
Edenred
estimates that it has a larger market share of around 33% compared to Computershare's 25%. Its ESC business, run through a subsidiary, Childcare Vouchers Ltd ("CVL"), currently has 15,600 customers (i.e. employers) and provides childcare vouchers for around 170,000 parents per month.
Edenred
is a founder member of the CVPA, which is a trade association set up in 2011 primarily to represent the interests of CVPs in the UK. Although the childcare voucher business is run by CVL, it is unclear on the evidence to what extent its parent company is involved. It appears that
Edenred,
or even its French parent, provides the supporting infrastructure (including the web platform). For ease of reference I shall continue to refer to the provider of the childcare vouchers as "
Edenred"
and that expression, where appropriate, shall be taken to include CVL.
Edenred
has entered into an ESC arrangement with an employer, it will provide the employer with a unique scheme ID, which can then be supplied to and used by parents to log in to
Edenred's
platforms.
Edenred
will create a designated online account in the name of the parents. The parents provide
Edenred
with their contact details and the name of their child, and
Edenred
then sends them (electronically, or in hard copy by mail) a pack. This enables the parents to create a password and log-in details to enter
Edenred's
computer system. The parents can then use this on-line facility to provide details to
Edenred
about the identity of the childcare providers they want to pay, how much they wish to pay and how often. They can direct
Edenred
to pay a set sum each month, in a similar fashion to making a standing order arrangement with a bank.
Edenred
will either send the parents a paper voucher representing the amount deducted by the employer and passed on to
Edenred,
which can be given to the childcare provider and presented by them to
Edenred
for payment, or else (as now happens in around 97% of cases) the matter will all be dealt with online by the generation of e-vouchers. When the nominated childcare provider redeems the voucher, (which it may do online via an account opened in its name with
Edenred),
Edenred
will cause the payment to be transferred directly into the provider's bank account.
Edenred
or other CVPA members to act as intermediaries in the delivery of TFC. This no doubt explains why in response to the two consultations carried out jointly by HMT and HMRC on behalf of the Government on delivery of TFC, the CVPA lobbied for the continuation and extension of ESC, with the employer remaining at the heart of the system, which would have been the outcome that best protected its members' commercial interests. The CVPA made a great deal of the likely increases in the administrative, reconciliation and interface costs that the increase in the number of customers from 50,000 businesses (the total number of employers using the services of all the CVPA members) to over 1 million individual parents would cause. However, the Government was not persuaded by those arguments, and
Edenred
now seeks to play down those factors.
Edenred
and other members of the CVPA were consulted extensively during the two consultation processes that the Government undertook in respect of the design and delivery of TFC, it eventually decided to go down the route of a banking/savings account and, instead of putting the provision of those services out to tender, to utilise the established infrastructure of NS&I working with the company to which it has outsourced its "back office" operations, Atos IT Services UK Ltd ("Atos") under the terms of a public services contract which commenced in April 2014 ("the Outsourcing Contract"). A significant feature of this case is that Atos was awarded that contract after a fair and transparent public procurement process complying with the Regulations, about which no complaint is, or could be, made.
Edenred
again sought permission to bring judicial review. Permission was refused by Laing J on the papers on 2 October 2014, on the basis that the CVPA lacked the necessary standing, and the current claim, brought by
Edenred
under CPR Part 7, canvassed substantially the same issues. Following a case management hearing before Leggatt J on 6 October, the judicial review proceedings were stayed and a speedy trial was directed of certain aspects of
Edenred's
Part 7 claim. That trial took place before me in late November 2014.
Edenred
challenges the decision under the Public Contracts Regulations 2006 ("the Regulations") and Article 56 of the Treaty on the Functioning of the European Union ("TFEU") on the grounds that these arrangements will involve the conclusion of a public services contract within the meaning of the Regulations or economic opportunity falling within Article 56 TFEU between either or both of HMT and HMRC on the one hand, and NS&I on the other; or alternatively that the arrangements will involve a material variation of an existing public services contract between NS&I and Atos, i.e. the Outsourcing Contract.
"...develop effective competition in the field of public contracts."
(C-247/02 Sintesi [2004] ECR I-9215 at [35].) Recital (2) to the Directive notes it gives effect to:
"the principle of freedom of movement of goods, the principle of freedom of establishment and the principle of freedom to provide services and to the principles deriving therefrom, such as the principle of equal treatment, the principle of non-discrimination, the principle of mutual recognition, the principle of proportionality and the principle of transparency".
"To ensure development of effective competition in the field of public contracts, it is necessary that contract notices drawn up by the contracting authorities of Member States be advertised throughout the Community. The information contained in these notices must enable economic operators in the Community to determine whether the proposed contracts are of interest to them. For this purpose, it is appropriate to give them adequate information on the object of the contract and the conditions attached thereto…"
Edenred
plainly falls within that description.
Edenred
is correct, it would have been necessary to carry out an open, transparent and competitive procurement exercise as prescribed by reg 5(1) before awarding a contract to anyone to deliver TFC through the provision of childcare accounts and associated services.
Edenred
claims that if such a procurement exercise had been, or were to be carried out, it would be one of the leading contenders to provide childcare accounts. That is strongly disputed by the Defendants, who contend that
Edenred
is unable to demonstrate that the decision has caused it to suffer any loss or damage.
Edenred
gave the court an undertaking that if it lost on these aspects of its claim it would be confined to a remedy in damages in respect of the remaining (stayed) causes of action. However,
Edenred's
claim at this stage is not confined to damages; the primary relief that it seeks is a declaration that the decision or decisions under challenge were unlawful or ineffective, and orders setting it or them aside. In such event,
Edenred
would potentially be able to compete for the opportunity to administer childcare accounts under the TFC scheme.
Edenred's
ability to compete and its likely prospects in such a competitive tender are obviously relevant factors.
Edenred's
counsel, Mr Coppel QC, pointed out, the court must also bear in mind the rationale for the discretionary remedy. The Regulations include provisions on remedy which give effect to Directive 89/665/EEC (as amended, in particular, by Directive 2007/66/EC) ("the Remedies Directive"). Recitals (13) and (14) of the amending Directive explain the rationale of the EU remedies regime in the following terms:
"(13) In order to combat the illegal direct award of contracts, which the Court of Justice has called the most serious breach of Community law in the field of public procurement on the part of a contracting authority or contracting entity, there should be provision for effective, proportionate and dissuasive sanctions. Therefore a contract resulting from an illegal direct award should in principle be considered ineffective. The ineffectiveness should not be automatic but should be ascertained by or should be the result of a decision of an independent review body.
(14) Ineffectiveness is the most effective way to restore competition and to create new business opportunities for those economic operators which have been deprived illegally of their opportunity to compete…"
Edenred's
strategy appears to be designed to eliminate NS&I from the competition altogether: at least, that would be the likely effect of accepting its arguments. Mr Coppel candidly accepted that if there were a public tender for the provision of TFC childcare accounts, then NS&I would almost certainly be unable to compete at all, since it is completely dependent upon Atos for the delivery of its operational services. If the Outsourcing Contract cannot be lawfully varied to include the services supporting and implementing the provision of TFC childcare accounts, there would be insufficient time for a fresh public procurement process to be carried out for the provision of those additional services for and on behalf of NS&I, before any public tender took place for the provision of those services to HMRC.
Edenred
would be that the Government would be precluded from utilising its own established banking infrastructure and support system, which already services millions of customers, to deliver TFC merely because, in a successful attempt to modernise, drive down costs and become more efficient, instead of retaining its operational staff, NS&I has lawfully outsourced all its operational services to a private sector supplier - using a process which fully complied with the self-same Regulations. On the face of it, that does not appear to be the type of mischief against which the Regulations are aimed. Nevertheless, if the Outsourcing Contract requires a material variation in order for NS&I to be able to deliver childcare accounts, there will have been a breach.
Edenred
submitted, and it would make no sense to construe s.113 so narrowly, given the background against which it came to be enacted, especially the policy of expansion of NS&I's B2B services. In any event, clause 16 of the Childcare Payments Bill, which has since been enacted as the Childcare Payments Act 2014, puts beyond doubt the power of NS&I to deliver TFC in co-operation with HMRC.
"For its part, NS&I, along with the rest of the public sector, has made efficiency savings as part of the Spending Review. For its part the Treasury agreed to give NS&I freedom. Freedom to go out and win new business from the rest of government – what NS&I calls its "business to business" agenda. We agreed that NS&I's operational capacity, its track record on delivery, its management capability to make change happen was strong. And other parts of Government could benefit from that approach. On top of that benefit, the "business to business" will also reduce the cost to the taxpayer of NS&I's operations".
80 companies (many of whom attended the industry day) expressed an interest in this opportunity via an online tool that NS&I used for all communications relating to the procurement. None was a member of the CVPA.
"We pride ourselves on delivering excellent customer service and this, together with the security we can offer to customers, forms the key element of our customer proposition. 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 non-departmental public bodies) and by local authorities." (emphasis added).
Edenred
(previously known as Accor Services) is part of the multi-national
Edenred
Group, which was created in 2010 by a demerger from the well-known French hotel group, Accor, and has a presence in 41 countries worldwide.
Edenred's
French parent company is listed on the NYSE Euronext Paris, and has a market capitalisation of approximately €5.3 billion. The
Edenred
Group specialises in providing prepaid corporate services. It designs and manages a wide range of solutions that improve the efficiency of organizations and purchasing power to individuals. The Group's 2013 consolidated financial statements, the latest full-year results available, show total revenue of €1,030,000,000 and a net profit of €171,000,000 for the year ending 31 December 2013.
Edenred
is itself the parent of a number of UK subsidiaries. Thus, for example, prior to the demerger,
Edenred
acquired a company which specialised in providing luncheon vouchers to private and public sector organisations for the benefit of employees. CVL is the subsidiary which, as well as providing Childcare Vouchers, provides Eye Care Vouchers and Carer Break Vouchers services to corporate organizations, local and national government agencies and the public sector.
Edenred
that were adduced in evidence are also those for the financial year ending 31 December 2013. In the profit and loss account for that period its operating income was said to be £1,062,000 and its profit £9,776,000. The balance sheet for 31 December 2013 shows net assets (including pension deficit) of £72,570,000. CVL's profit for the same period was stated as £8,332,000, but it is not known how much of that profit was derived from Childcare Vouchers and how much from the other aspects of its business.
Edenred's
Managing Director, frankly accepted in cross-examination that not even the
Edenred
Group as a whole would have met the financial requirement of a £1 billion annual turnover in the PQQ for the Outsourcing Contract with NS&I. However he contended for the first time in his third witness statement (and maintained in his oral evidence) that if the OJEU Notice had made specific reference to TFC or childcare accounts,
Edenred
would have participated in the bidding process. He added that he was sure that other CVPA members would have done so as well. He said that
Edenred
had "banking partners" and that it would have "entertained the idea of partnering through a consortium or a joint venture".
Edenred's
business) which led me to approach it with a degree of caution. Of course, as the OJEU Notice made plain, the tender of the Outsourcing Contract was not a tender for NS&I's savings, investment and accounts products but for the IT and other operational support needed by NS&I to be able to carry on its business and offer B2B services to other government departments. That is why there is no reference to Premium Bonds or other products or services offered by NS&I on the face of the OJEU Notice. I accept it is possible that if childcare accounts had been specifically mentioned,
Edenred
might have been interested in participating in a tender, but that interest would have been restricted to delivery of the childcare accounts. It would not have been interested in providing the required services to support NS&I's core retail business or any other B2B opportunities. It has no expertise whatever in the banking sector. It could not possibly have bid for the Outsourcing Contract by itself even if it had wanted to (which it would not have done). Its best chance would have been to try and interest a potential prime contractor to include it as a sub-contractor.
Edenred
simply because one of the types of B2B services to be provided would (or might) be childcare accounts. Indeed it is far more likely that such an entity would have preferred to tender in its own right and keep all the profit for itself, as commercially
Edenred
would have had nothing of sufficient interest to offer it in return for a share of the profits.
Edenred
had experience of running the ESC scheme and thus of receiving money to be paid to childcare providers from employers, apportioning those sums to relevant employees and making payments out to the providers, keeping records of registered childcare providers, and dealing with queries from parents, those are all administrative and logistical tasks that business processing outsourcing companies ("BPOs") such as Experian, Liberata, Capita and Atos, as well as any bank, were well placed to carry out without assistance, input or advice from
Edenred
(or any other member of the CPVA). That experience in and of itself would be insufficient incentive for such an entity to bring
Edenred
on board even as a sub-contractor, particularly given the differences (including the vast difference in scale) between the ESC and the TFC schemes. I am reinforced in this view by the fact that none of the bidders for the Outsourcing Contract proposed bringing in an additional party to give advice in respect of the CFO or ELPS schemes, and Atos has not proposed bringing in anyone specifically to help it with the setting up and administration of childcare accounts.
Edenred
had wanted to bid as part of a consortium, there was no room for manoeuvre so far as a change to the existing banking engine was concerned. Mr Harkins accepted in cross-examination that, at the behest of HMRC, another instance (which he termed a "sort of duplicate version") of the existing banking engine was being created for TFC, with the same functionality that has already been developed, which could be replicated and potentially used by a different TFC account provider in the future. It was pointed out by Mr Coppel that just as Atos had sub-contracted with Sopra for the Thaler banking engine,
Edenred
could have gone out and done the same. Whilst of course that is theoretically possible,
Edenred
would not have done so.
Edenred
(and its competitors) had invested considerable amounts of money, (though nothing like as much as NS&I) in developing their own online platforms – Mr Langlois mentioned a figure of £10 million. It is fanciful to suppose that they would willingly write off that kind of investment in order to familiarise themselves with, utilise, and pay someone else to upgrade, develop and maintain the Thaler software or a replicated version of it, in order to deliver childcare accounts, particularly if the only part of the Outsourcing Contract in which
Edenred
would have been interested in delivering was that which enabled delivery of TFC by NS&I.
Edenred
had managed to interest another party or parties to join in the bidding with it, then given the nature and strength of the competitors the chances of such a consortium even getting past the first stage of the bidding process are so remote as to be described as fanciful.
The first ground of challenge – the MOU.
Edenred
that the proposed MOU between HMRC and NS&I is a "public services contract". Alternatively, if it is not, Article 56 of TFEU applies because it creates an economic opportunity in the form of a licence or exclusive right to engage in an economic activity which is of cross-border interest. On behalf of the Defendants, Mr Moser QC's response was that the arrangements made between HMRC and NS&I do not engage the Regulations or Article 56 at all, but alternatively if they do, they fall within one of the recognized exceptions exemplified by C/480/06 Commission v Germany [2009] ECR I-4747 (known as the "Hamburg Waste" exception). In my judgment, Mr Moser is right on the first point, and thus I need not consider the exceptions.
"(5) It should be recalled that nothing in this Directive obliges Member States to contract out or externalise the provision of services that they wish to provide themselves or to organise by means other than public contracts within the meaning of this Directive. The provision of services based on laws, regulations or employment contracts should not be covered….
(31) … the sole fact that both parties to an agreement are themselves public authorities does not as such rule out the application of procurement rules. However the application of public procurement rules should not interfere with the freedom of public authorities to perform the public service tasks conferred on them by using their own resources, which includes the possibility of cooperation with other public authorities.
It should be ensured that any exempted public-public cooperation does not result in a distortion of competition in relation to private economic operators in so far as it places a private provider of services in a position of advantage vis-a-vis its competitors." (Emphasis added).
Edenred's
contention that NS&I has a distinct legal personality from HMT is correct).
Edenred
relies on the level of detail in the MOU (including the fact that HMRC's operational requirements are set out over some 63 pages in Schedule 2), HMRC's right to make deductions from the monthly service charges if the specified service levels are not met, the detailed charging structure set out in Schedule 5, and the provisions for interest to be paid by HMRC on any late payment of charges and for any profit from efficiency savings to be shared. There is no denying that in many respects the MOU resembles a detailed commercial contract. However, that is not what it is. It is a document that reflects the internal arrangements, including charging arrangements, made between government departments working together to deliver a policy set by HMT.
"… in considering whether the procurement provisions apply, one must have look at the whole of the arrangements between the contracting authority and the contractor; and, in particular, whether there is in reality a multi-stage award procedure which comprises in substance a unity which includes an obligation to perform works and is consequently subject to the procurement rules..."
However, this is neither a case of a "multi-stage award procedure" nor of a deliberate structuring of arrangements to get around the Regulations. Of course the way in which an arrangement would be treated as a matter of domestic law is not an end of the matter. One needs to look at the economic realities. However even under EU law, the arrangement has to be binding.
Edenred
submitted that in substance there is a public contract here by reason of the fact that the obligations that will be contained in the Amendment Agreement to the Atos Outsourcing Contract are repeated and reflected in the Schedules to the MOU, and that in consequence of this and the fact that they are intended to be executed simultaneously, the Amendment Agreement and MOU should be treated as one economic transaction. However, I do not consider that the fact that the Amendment Agreement underpins, and is necessary to enable NS&I to deliver the operational services denoted under the MOU, and that the two arrangements will be made simultaneously, means that in reality HMRC is procuring Atos, rather than some other private entity, to deliver those services to it. I reject
Edenred's
suggestion that NS&I is just a front for Atos. That is not the position either legally or as a matter of fact. NS&I will not be providing Atos's services; it will be providing its own services as a bank to HMRC, using its back office functions that have already been outsourced to Atos following a legitimate public procurement process.
Edenred's
argument based on the timing and content of the Amendment Agreement and its reflection in the MOU really begs the question whether the proposed Amendment Agreement is a material variation to the Outsourcing Contract or not. In my judgment, if it is not a material variation, then the fact that instead of using its own civil servants to deliver the services NS&I will be using staff and other resources outsourced legitimately to Atos would not engage, let alone offend, the Regulations.
"16 Account providers
(1) Childcare accounts may be provided by any of the following—(a) the Commissioners for Her Majesty's Revenue and Customs, (b) a person or body with whom the Commissioners have entered into arrangements for the provision of childcare accounts, (c) if the Treasury so determine, the Director of Savings ("the Director").
(2) If the Director provides childcare accounts, the Director must in doing so act in accordance with any arrangements made between the Director and the Commissioners with respect to the provision of childcare accounts.
(3) Arrangements made between the Commissioners and a person or body within paragraph (b) or (c) of subsection (1) may include provision for the making of payments by the Commissioners to the person or body in respect of the provision of childcare accounts (and accordingly nothing in section 15(8) or (9) affects the inclusion of such provision in the arrangements)…"
Edenred
contended that the MOU has, at the very least, granted to "NS&I/Atos" a monopoly right (by way of authority or permission) to provide childcare voucher services under the TFC Scheme, even if it is not a "public contract" falling within the scope of the Regulations. The first reason why that argument must fail is that the MOU has granted no rights to Atos. Atos' rights and obligations derive from the Outsourcing Contract, as amended, and are owed to NS&I. Secondly, NS&I does not derive its authority to provide the services from the MOU – it derives it from HMT or, at least to the extent that authority includes capacity, from statute. The MOU reflects an arrangement between NS&I to co-operate with HMRC in the implementation and delivery of government policy by providing certain types of bank accounts, which is what NS&I is empowered to do by statute, especially if so directed by HMT. NS&I neither needs nor obtains "permission" from HMRC; like HMRC, it is told by HMT that this is the way in which it has decided that TFC is going to be delivered. In any event the TFEU is not aimed at, and does not apply to what are, essentially, resource-sharing arrangements made internally between two government departments, any more than the Directive does. See also AG Quidnet Hounslow LLP v Hounslow LBC [2012] EWHC 2639 (TCC), discussed in paragraphs 121-124 below.
The second ground of challenge – material variation
i) introduces conditions which, had they been part of the initial award procedure, "would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted" [35]; or
ii) extends the scope of the contract considerably "to encompass services not initially covered" [36]; or
iii) "changes the economic balance of the contract in favour of the contractor in a manner which was not provided for in the terms of the initial contract" [37].
However if the change operates to the detriment of the contracting party providing the services (e.g. by driving down its profits) it will not be material.
Edenred
contended that the childcare account services were not advertised and that the OJEU Notice was insufficiently specific. Mr Coppel pointed out that the original tender in Commission v France for the first phase of the project (the feasibility study) embraced the possibility of further clearly defined services being provided in the second phase, and yet, although there was specific reference to the nature of the particular works in the second phase, that was not good enough to avoid the need for a further procurement exercise. In the present case, he submitted that the future B2B services adverted to in the OJEU Notice were far too generic, and even less clearly defined than the specific services in Commission v France. The same was true of Commission v Spain, which related to the construction of two new links in the A-6 motorway from Madrid to La Coruna. The Commission's objections in that case were chiefly based on the fact that the successful tender included works that were not even mentioned in the specifications that the Spanish Government had advertised. Moreover the wording of the specifications was not such as to lead participants to suppose that they could propose additional works on a scale and in a location comparable to the scale and location of the additional works proposed by the successful tenderer, which already held the concession for work to a different section of the same motorway.
"…it does not satisfy Directive 93/37 when, without any transparency, a public works concession contract is awarded which includes works referred to as "additional" which of themselves constitute "public works contracts" within the meaning of that directive and the value of which exceeds the threshold laid down therein".
In my judgment that is just another way of expressing the principles in Pressetext that the Regulations and Directive cannot be evaded by making a variation to an existing public contract even if variations are allowed. A public authority cannot justify awarding an existing private contractor what is in substance a new public services contract to do works that were not part of the original specification, on the basis of a provision in the first public services contract that envisages that additional works of an entirely unspecified nature might be required in the future.
Edenred's
objections may have had some force, but any bidder for this Outsourcing Contract would have known that it was bidding for the opportunity to provide exactly the same kind of administrative support to NS&I if NS&I were to open and service bank accounts for another government department, as it would have to provide if NS&I opened new types of savings accounts to raise money for HMT. There was no necessity to spell out what sort of bank account it might be and identify each and every other government department it might be delivered to.
Edenred's
argument was tantamount to a contention that the Outsourcing Contract could not lawfully be used in the manner in which it was plainly intended and flagged up in the procurement process that it should be used, in accordance with the strategy agreed in the 2010 Spending Review, namely, to enable NS&I with the support of the successful bidder to deliver bank account and payment services to other government departments, just as it had provided CFO and ELPS under the previous Outsourcing Contract for the MOJ and HMT. In other words NS&I could never offer its banking, account or payment services to another Government department without going through a fresh public procurement process for the outsourcing support necessary to enable it to do so. Mr Coppel did not shrink from adopting that proposition, though he tried to soften it by suggesting that there were other ways in which the Government might have legitimately achieved the same objective. However, I do not accept the proposition.
Edenred
had read the OJEU Notice or attended the industry day, it would have known enough to appreciate that if in future the Government decided to deliver childcare accounts through NS&I instead of putting them out to tender, the only way that
Edenred
would be able to get involved would be by making (or participating in) a bid for that contract.
Edenred
could do neither. It knew that. NS&I were advertising for a prime contractor (with any necessary specialist support to be provided by way of sub-contracting). It is wholly unrealistic to suppose that adding childcare accounts to the other types of accounts that needed to be serviced and supported would somehow have engendered new bids for the entire Outsourcing Contract from entities who were only interested in being involved in providing the childcare accounts themselves, and whose core business was not an IT or operational or technical support business.
Edenred,
then they would probably do that after they had won the bid (though Atos has not) but it is unrealistic to suppose that they would have been prepared to sub-contract something they could easily do themselves. It would have been uncommercial. There is no evidence that any entity who did not bid would have leapt at the chance of bidding together with a CVPA member as part of a consortium but was dissuaded from throwing its hat in the ring because it was unaware that childcare accounts were part of the package, and the inclusion of childcare accounts would have made all the difference provided it could get a CVPA member to join in and deliver those services.
Edenred
to show that if the services in the Amendment Agreement were included from the outset, then hypothetically other bidders (not necessarily
Edenred)
would have been admitted or would have been allowed to have been admitted or would have wished to have been admitted. However, in my judgment the examples of material variation given by the CJEU have to be interpreted as examples of scenarios in which, in substance, a new contract has been concluded, unfairly conferring a competitive advantage on the existing contractor over someone else who would have participated in the process. There would be no such unfairness, and no distortion of competition, if no-one else would have bid or if the complainant's putative bid would never have got off the ground, which is the case here.
Edenred
to satisfy the court that it, or another CVPA member, would have bid for the Outsourcing Contract if it had been made clear that the operational services specified in the Amendment Agreement supporting the delivery of childcare accounts was one of the future B2B services that NS&I might provide. In order to have bid, of course, it would have had to have satisfied the PQQ requirements.
Edenred
could not have bid by itself, as it had insufficient financial resources, and that I am not satisfied that any other economic operator who could have delivered the services in which
Edenred
was not interested, and who would have met the PQQ financial threshold, would have joined forces with it to make a bid, or would have wanted to do so. That rules out
Edenred
itself as a potential bidder. So far as evidence about other potential CVPA bidders is concerned, it was Mr Langlois' view that one of
Edenred's
competitors would have wanted to bid because it had expended millions of pounds in 2008 in acquiring a subsidiary whose business was providing childcare vouchers: but that is pure speculation, and even if it is reasonable speculation, it tells the court nothing about that unidentified competitor's ability to make a bid, or to meet the PQQ threshold, as opposed to its desire to do so. Such a CVP would have faced exactly the same problems as
Edenred
in getting another economic operator to join forces with it.
Edenred.
There are no financial statements in respect of Computershare, and as with
Edenred,
there is no evidence that any third party who had the capability to bid for the remaining services under the Outsourcing Contract would have been ready, willing and able to join forces with Computershare so as to enable Computershare to deliver the childcare accounts, instead of bidding in its own right and keeping all the profit if successful. If
Edenred's
experience of delivering ESC would not be a sufficient incentive then neither would Computershare's.
Edenred
in that regard.
Edenred
alleged that the charging provisions under the Amendment Agreement would differ from those under the Outsourcing Contract but at that stage, no detailed reasons were provided. At the start of the trial
Edenred
made an application for further disclosure relating to this issue, which I allowed.
Edenred
then put in a "Supplementary Note on Economic Balance" towards the end of Day 2, on which Mr Moser took some instructions overnight and to which he raised strong objection the next morning. After hearing argument I decided to admit the Note, and allow the Defendants to provide a written response to it.
Edenred's
argument that Atos' profit margin was greater under the Amendment Agreement was fatally undermined when it was pointed out by the Defendants (and subsequently accepted by
Edenred)
that it had mistaken the calculation of mark-up for the calculation of profit margin. This led to the basic error of dividing profit by cost to calculate profit margin, instead of dividing profit by the charges. As the Defendants were able to demonstrate, the (projected) profit margin shown in the baseline financial model for the Amendment Agreement is consistent with that in the baseline financial model for the main contract.
Edenred's
legal team the opportunity to digest the implications of the admitted error, and put in some further written Reply Closing Submissions after the trial had ended. I also gave permission to the Defendants to respond in writing to any points raised in
Edenred's
Reply Closing Submissions which Mr Moser felt that he had not sufficiently addressed in oral argument, and they did so. For the reasons set out in that response,
Edenred's
remaining arguments on the economic balance point were just as fundamentally misconceived and equally based on factual misapprehensions.
Edenred.
Thus it is simply wrong for
Edenred
to assert, for example, that Atos will be paid for the overheads and a 10% profit on top.
Edenred
has fallen into the further error of confusing Atos' cost model projections with the charges for its services. The financial model for the TFC variation forecasts projected cost and thus projected price, but it is not the basis upon which NS&I will be charged by Atos.
Edenred
also sought to make a point about some payment services (known as HOPP) that Atos had already been providing for the Home Office at the time of the Outsourcing Contract, though it seemed to me that it was little more than a prejudice point which did not take it any further on the substantive issues or assist me to decide them. On the evidence of Mr Harkins, which I accept, those services (which Atos was already contractually obliged to deliver to the Home Office) were incorporated into the Outsourcing Contract as a B2B service as a short-term practical measure whilst the Home Office implements its strategy to close them, and the charging structure for them was different because it was inherited from the previous contract between Atos and the Home Office. I am not persuaded that these historic payment services have any impact on the question of material variation.
Causation and Loss
Edenred
can establish that the breach has caused it loss. The parties were agreed that this has to be assessed as the loss of a chance, and on well-established principles that means that
Edenred
had to satisfy the court that there was a real, as opposed to fanciful, prospect that if it bid for a contract to deliver childcare accounts, it would have been awarded the contract. A real prospect means just that; it does not mean more than 50%, and previous cases have encompassed awards of damages where the lost chance has been evaluated as low as 17%.
Edenred
in the present case. Although Mr Langlois expressed optimism about
Edenred
being able to scale up its operations to meet the requirements of TFC, based upon its expertise in delivery of childcare vouchers under ESC, and on the expertise and resources of its wider corporate group, (he referred in particular to the experience of another
Edenred
subsidiary in handling large volumes of prepaid transaction processing services) he did not address timescale, other than to estimate that it would take around 6 months to establish the necessary interfaces between
Edenred's
and HMRC's systems (which is just one aspect of what would be required). There was no supporting evidence to enable the court to evaluate whether that time estimate was realistic. No evidence was even adduced from
Edenred's
parent company to confirm that the necessary finances would be made available.
"I think that one of the reasons that we chose the NS&I …our ministers chose the NS&I option, was some of the feedback coming out of… from parents and out of focus groups and the other consultation we did about favouring an in-house, a Government provider. So whilst at this point clearly with NS&I also on the table, that was the superior of our options, if NS&I had not been on the table, we may have looked more closely at the HMRC option".
When it was put to her that the autumn 2016 timing issue and the disadvantage of it being outside HMRC's expertise were very serious disadvantages nevertheless, Ms Russell agreed, but said that the procurement route had "not dissimilar timing" and agreed that the estimated difference was six months. Ms Newton's evidence in her second witness statement was also that "there is no presumption that Ministers would choose to tender for an account provider for TFC - it may be that HMRC deliver the accounts in-house instead." I anticipate that much would depend on whether the private sector route could be shown to be really likely to provide a significant advance on the delivery date and whether speed of delivery outweighed the other perceived advantages of keeping the matter in-house.
Edenred
and other CVPs, a high street bank, and BPOs attended a supplier day in response to a "prior information notice" published by HMRC in June 2014 during the second consultation. The smaller CVPs who attended the supplier day said that they would be most interested in bidding for TFC if there were 5-10 suppliers. The larger ones, including
Edenred,
did not say on that occasion whether they would bid (though it was assumed by the authors of the 14 July 2014 document that they would). That assumption was well founded, because in its response to the second consultation, whilst favouring an expansion or adaptation of ESC,
Edenred
indicated that it would be interested in bidding for the work if the decision was made to use one or more private sector suppliers to deliver TFC. Ms Russell and Ms Newton's non-evidenced expectation was that the larger CVPs would prefer a multi-provider solution of 4 providers to partition the market. Follow-up one to one interviews were offered for the following day. Four or five of the attendees followed up in one-to-one telephone conversations and a further two submitted further information in writing in response to the one-to-one questions.
Edenred
did not take up the offer of a one-to-one discussion.
Edenred's
chance of being awarded a TFC contract as one of the providers chosen as part of such a bid is negligible or non-existent.
Edenred
had a real rather than fanciful prospect of being awarded the tender as the sole provider. Whilst
Edenred
has a substantial parent company there was no evidence adduced from that entity. There is no financial or accounting evidence to give the court any idea of how much money from its own business ventures it might be able to afford to invest in
Edenred
for this project, assuming that it was prepared to back it (as to which there was no evidence from the parent company either). I do not lose sight of the fact that the Claimant in this case is
Edenred,
not its parent, nor the group to which it belongs, nor CVL, the
Edenred
subsidiary that actually runs the childcare vouchers business.
Edenred
itself has no experience of dealing with complex accounts or millions of customers. On Mr Langlois' evidence, since 2014, 220,000 parents have conducted "at least one transaction" on their account and
Edenred
handles 110,000 telephone calls per annum relating to childcare vouchers.
Edenred
would need to scale up its operations – including increasing its capacity - by a factor of 10, with all the additional increases in human and other resources that entails. At present it only employs 86 full time equivalent employees on its CV business. TFC has different operational requirements from ESC. The magnitude of the challenges facing
Edenred
or any CVPA member was something that the CVPA emphasized in its responses to the consultations. Ms Russell's evidence was that based on the scale of the challenge for
Edenred
it is far from clear that they would have even met the pre-qualification criteria for bidding, let alone been the successful bidder for a government contract that attracted the interest of 15 companies in the pre-market engagement exercise. She points to the fact that
Edenred
did not even engage in follow-up conversations after that event. I agree that this is hardly the behaviour of a really keen would-be bidder; but of course,
Edenred
was still advocating a variant of ESC as the preferred means of delivering TFC at that time.
Edenred's
potential rivals. A clearing bank would be the obvious type of provider that could deliver the kind of service the Government was looking to NS&I to provide, and which would have the advantage of experience of dealing with complex accounts and millions of customers. It would have the further advantage of being independently regulated, unlike the CVPs. It would be the nearest equivalent to using NS&I. The 15 entities which expressed an interest at the supplier day included a high street bank. Of course there could be no pre-disposition towards a particular type of bidder, but if a bank were to bid, its ability to deliver what the Government wanted would easily eclipse that of
Edenred.
Edenred
is not a bank is immaterial, because TFC does not require a bank, it just needs a provider who can operate accounts. He pointed to the fact that the Government itself thought that the CVPs could deliver TFC – that is why they entered into such extensive discussions with them on that topic. In basic terms, he submitted, what was required was just a more complex (and more expensive to set up and deliver) variation on the service they were delivering already to employers under ESC – the handling of multiple online accounts and payments into and out of such accounts. I consider that this plays down the differences between ESC and TFC. Mr Coppel also made the point that even NS&I could not deliver TFC without making changes to its existing operations to cater for its greater complexities and making the significant financial outlay required, and so anyone who tendered for TFC would face the same challenges. That is true, but it would be easier for some to overcome those challenges than it would for others. Mr Langlois' oral evidence was that the financial outlay was no obstacle as
Edenred
could rapidly raise millions from its parent company or its shareholders, but as I have already said, there is no evidence from
Edenred's
parent company let alone the shareholders that they would have been willing to sink millions into such a venture and no evidence that the matter had even been put before the board of the parent company for consideration.
Edenred
would be as attractive or as viable a provider as a bank or a BPO were they to bid, and on the evidence of the types of entity displaying an interest even at a supplier day of which fairly short notice was given, it is inevitable that bids would be made by such entities.
Edenred
would even have made a bid (on the assumption in its favour that it would have met the qualifying criteria for such a bid). Despite Mr Langlois' optimism, which as I have already said in the context of his evidence about bidding for the NS&I Outsourcing Contract, I treat with a degree of caution, I do not accept that it could have scaled up its operations to deliver TFC all by itself. Mr Langlois made a lot of claims in his third witness statement about
Edenred's
experience, its IT platform, the experience of other members of the
Edenred
Group in prepaid business solutions, the group's experience as working successfully as members of a consortium or joint venture but there was nothing in that evidence to convince me that
Edenred
had any particular expertise or other unique selling point that would make it a leading contender for the award of the TFC contract. The fact that it was experienced in making payments to childcare providers on a much smaller scale is not such a feature because all its rivals would have experience in making payments.
Edenred
would have faced exactly the same kind of problems as it would have done in seeking to make a bid for the Outsourcing Contract if it tried to interest another entity in joining forces with it. There was no evidence from any of its CVP competitors that they would have done so. A BPO would not have been interested in joining forces with
Edenred
to deliver services that it could deliver by itself. It was the BPOs who expressed a strong interest in the single provider option after the supplier day. There was no, or no reliable evidence that anyone else would have teamed up with
Edenred,
despite Mr Langlois' reference to
Edenred
having (unidentified) "banking partners". Even if
Edenred
had made a bid, it would have stood no realistic chance of succeeding against a bank or against a BPO.
Edenred
may well have succeeded in persuading HMRC that it could deliver childcare accounts. However, it would have faced very significant problems in scaling up to the necessary extent. There is no reliable evidence that it could have built the necessary infrastructure and been ready to deliver within 6 months of an award or that it could have done so alone. There is no evidence that any other entity would have participated in a joint venture with it, other than Mr Langlois' supposition. It is fanciful to suppose that
Edenred
would have persuaded HMRC that it was better placed than a bank or BPO to deliver TFC merely on the back of its successful track record of delivering ESC. It must be borne in mind that although the possibility of delivering TFC through voucher providers was something that was considered early on, NS&I was selected instead because it could build on its existing banking and service infrastructure, it had experience of dealing with millions of customers and millions of accounts already, and it had UK call centres already in place (even if it needed to provide another one). Moreover, being backed by the Government, it provided the most secure option. Realistically, therefore,
Edenred
bidding for a single provider award by HMRC would not have stood a chance against an independently regulated private sector organization such as a clearing bank, or even against a BPO. In the alternative scenario where
Edenred
would be bidding for the provision of support services to NS&I so as to enable NS&I to provide the accounts to HMRC, its chances of successfully outbidding Atos or another BPO are even more remote.
Edenred has failed to discharge the burden upon it of establishing that the breach caused it to suffer any loss. In those circumstances I would not have exercised my discretion to grant declaratory relief or to set aside the decision to award the contract to NS&I under Regulation 47I. It is not the practice of the court to grant legal remedies that have no practical purpose, or to make declarations merely to express disapprobation or to act as a deterrent. I do not consider that it would accord with the underlying principles of encouraging and promoting fair and transparent competition to set aside a decision that did not, in fact, deprive the person complaining about it of any valuable economic opportunity and which, if it had to be re-made, would confer no benefit on that person.