The use of framework contracts of questionable legality could lead
to all public sector IT purchases being met by a small number of
selected suppliers. Tony Collins reports
Two major IT suppliers have expressed concern to Computer Weekly
about the way the Department of Social Security (DSS) awarded a
large outsourcing contract last month to US services giant EDS.
"It was not, in our view, the best way to go about a tender,"
said a senior executive at one of the supplier organisations, "but
we're not going to make an issue of it. There's too much riding on
the relationship [with the department]."
A second large supplier agreed with this sentiment, though in
different words. The complaints may be the sour grapes of contract
losers, but it is rare for suppliers to express concern over a
tender - even if anonymously.
The outsourcing element of the DSS's Accord contract was won
under a vague, umbrella contract, known as a framework deal, that
was signed four years earlier.
This framework agreement in 1996 allowed EDS to acquire 1,550 IT
staff last month from the DSS. There was no specific advertised
tender.
As the lead supplier in a consortium called Affinity, EDS, with
its partners which include IBM and PricewaterhouseCoopers, also
scooped from the DSS a £200m contract to replace systems at the
Child Support Agency. Again, there was no specific open tender. The
deal was awarded under the same umbrella framework in 1996 that
took in the DSS outsourcing contract.
The view of the Treasury, the DSS, and the Central Computer and
Telecommunications Agency (CCTA), which advises departments on
procurement, is that there is nothing wrong with the way Affinity
won the two contracts, which are worth more than £2bn.
But the European Commission (EC) is to challenge in court the
legitimacy of awarding contracts under the auspices of vague,
initial framework deals as has happened between the DSS and
Affinity. It has referred the Department of Environment Northern
Ireland to the European Court of Justice over the way the
department allegedly infringed rules on open competitive tendering
by using a "framework contract".
The EC also disclosed to Computer Weekly last week that it has
sent what it called "pre-infringement" notices to the UK Government
about the use of two further specific framework agreements Gcat and
S-cat.
Administered by the CCTA, these are schemes which allow all
public sector organisations to buy IT services and systems using
lists similar to catalogues from the retailer Argos.
Frameworks such as Gcat and S-cat usually involve a general
tender advertisement in the EC's Official Journal, followed by the
appointment of a group of suppliers.
This framework deal then allows the department to order services
from selected suppliers without the publication of a further
advertisement that sets out the specific elements of the
contract.
By this method, the UK Government can, in theory, bypass EC
tendering requirements on any major IT purchase. This may save on
time and expense in tendering openly and choosing a supplier
according to EC tendering rules.
But critics of frameworks say that they may allow departments to
develop cosy relationships with one or two main suppliers on which
they come to rely, to the exclusion of other innovative companies
that may provide better value for money.
To satisfy internal auditors, purchasers need show only that
their main supplier provides value for money, in a generalised
sense, against other companies that have been selected under the
same framework deal.
Some IT specialists and lawyers say that framework deals may
also reduce accountability. Departments need not advertise the
details of any contract to be awarded, such as the price, what
requirements the supplier is supposed to be meeting, or when the
system is due to be delivered.
This could help to explain why framework deals are becoming the
norm. Lawyers say the UK appears to be a more enthusiastic
supporter of framework deals than other European countries.
"The tension between the Government and the EC over framework
contracts appears to be more apparent in the UK than in other
countries," said Iain Monaghan, an IT lawyer at Masons.
The CCTA does not hide its intention to use framework contracts
to bypass EC tendering. Gcat is used by more than 600 public sector
organisations, the CCTA receiving a commission on catalogue
purchases.
"Gcat was set up under EC procurement rules so customers do not
have to go through the expensive tendering process regardless of
the value of the order," says the CCTA in its Web site which
promotes Gcat.
Not inconceivably, all government, NHS and local authority
purchasers could in future use a single framework deal to purchase
everything, and advertise no specific tenders, as if there were no
EC tendering rules on competitive procurements.
Last month, the CCTA advertised in the Official Journal that it
"intends to award a number of framework contracts, which will
replace the existing Gcat contract and may replace various NHS and
other public sector contracts in due course.
"It is estimated that the total potential value of orders placed
under the contracts could be between £600m and £1.5bn over a
three-year contract term, rising to a potential maximum of £2.5bn,"
it said.
Whether departments adhere to EC tendering rules or flout them,
they are unlikely to face any formal complaints from competing
suppliers, as their reluctance to be named in this article
shows.
Any supplier who wishes to complain about a procurement under
the EC's Remedies Directives has to identify itself. It will then
have to prove to the High Court that it would probably have won the
bid if the competition been conducted properly. It will also have
to prove that it has lost money as a direct result of being
excluded - a difficult, perhaps impossible task, say some
lawyers.
Also, the companies that are most likely to protest about the
lack of competition on a major IT procurement are those that have
most to lose by complaining, as they will be seen as biting the
hand that feeds them. The top 10 IT suppliers to government earn
hundreds of millions of pounds a year from public sector computer
contracts.
In its defence, the Treasury says the EC plans to alter its
rules specifically to allow framework contracts in IT and other
areas. But this is only partially true. Vague, umbrella framework
deals will be acceptable only if they are followed by specific open
competitive tenders, say EC officials. The Treasury does not
agree.
Whatever the rulings of the EC or the European Court of Justice,
it appears likely that the Treasury's relaxed interpretation of
framework deals will hold good.
"We advise departments and agencies that it is wrong to infringe
EC tendering directives, but we also have to tell them that if they
do infringe, it's unlikely anyone can or will do anything about
it," said Stephen Tupper, EC specialist lawyer at Hammond
Suddards.
The message to public sector purchasers is clear therefore: you
need not be concerned about EC challenges on the legality of
framework deals.
In the case before the European Court, a judgement is years
away; and even if vague framework deals are ruled unlawful, in
practice there's nothing to stop you continuing using them, with
the Treasury's full support.
Government IT supply: an exclusive club?
Will the supply of IT systems and services to government soon
become an exclusive club? The Treasury's Central Computer and
Telecommunications Agency has given a hint of the difficulties that
may be faced by suppliers that are excluded from an overarching
umbrella "framework" contracts. Such framework deals could soon
encompass most or all major public sector IT purchasing of
services, consultancy, support, hardware and software.
Referring to the agency's S-cat framework contract for IT
services, the CCTA's Web site states that suppliers who wish to
take part in the scheme have only two options.
- Respond to any [European Journal] advertisement for S-cat that
CCTA may place in the future
- Contact any S-cat prime contractor and offer their services
through them.