Is huge IT staff transfer to EDS lawful?

A test case in the European Court of Justice could decide whether the UK Government has awarded some large IT procurement contracts unlawfully.

Deals in which the legality could be in doubt include the outsourcing this month of 1,500 Department of Social Security (DSS) IT staff to EDS, and a separate £200m contract to build new systems that support reforms at the Child Support Agency (CSA).

One of the main issues is whether large contracts should be the subject of a specific and detailed advertisement for tenders, or whether they can be awarded in secret under the umbrella of a publicly advertised general framework agreement. Framework agreements are meant to reduce the cost of large-scale IT procurement.

The European Commission, which refers cases to the European Court of Justice, accepts the principle of framework agreements, but does not always accept the UK Government's interpretation of what is permissible under such contracts.

In a test case involving the Northern Ireland Depart-ment of the Environment, the European Commission said framework agreements are acceptable if they are "sufficiently specific as to detail the key elements" of any individual contracts to be awarded later, and if these are set out in a binding form when those contracts are awarded. In these cases, the European Commission said it is not necessary to advertise each of the deals and follow detailed open competitive directives.

But the Commission added that when, in framework contracts, the "key terms and conditions of individual contracts are vague, or simply not specified at all, [individual contracts over a specified value] must be advertised in the Official Journal and follow the detailed procedural requirements of the public procurement Directives".

Stephen Tupper, a lawyer who specialises in EC procurement contracts at Hammond Suddards questioned the legality of the DSS using its 1996 advertised "framework" contract as a reason for not publishing specific open tenders for the recent DSS and CSA contracts. He added that he was "startled" by the vagueness of the "framework" contract. "The DSS appears to be using the 1996 notice as carte blanche to issue contracts that really should be subject to specific open tenders," he said.

"Departments are eliminating a lot of hassle by the use of framework contracts, but the European Commission may take the view that they may also be eliminating plenty of competition among some brilliant IT companies that could have competed for each of the individual contracts," he said.

In a prepared statement, the Treasury insisted that all the UK Government's framework agreements comply with European Commission tendering rules. In separate actions, the Commission is also challenging the Home Office's decision to reject tenders that are not based on a specific technical standard. The Commission says this practice could discriminate against firms that may offer "genuinely equivalent solutions".

If the European Court rules that the UK's interpretation of framework contracts is unlawful, Tupper said this could lead to firms seeking damages, claiming that they were unlawfully excluded from bidding for contracts such as those at the DSS.