Our September breakfast club covered the following points: - making procurement rules work for you - innovative procurement - social value - making contracts fit for purpose - avoiding a Carillion - contracting for the challenges ahead. To view further information and resources visit our webpage - https://www.brownejacobson.com/sectors-and-services/sectors/public-sector

1. Public sector breakfast club
September 2018, Exeter

2. Procurement and contracting in
a challenging environment
Michael Mousdale
Partner, Browne Jacobson

3. In a nutshell….
• Large scale outsourcing is broken
• But we still need the market
• We need to be better at commissioning and
procurement
• We need to manage our procurements and our
contracts better
• We need to get better at being commercial and
understanding risk
• We need to be better at predicting the future

4. Contracting in Crisis?

5. Why has this gone wrong?
• Concentration of market power
• Erosion of competition by consolidation and
procurement policy
• Poor governance and management
• Questionable tendering strategies
• Insufficiently robust selection procedures
• Tolerance of low-balling
• Ignorance of supply chain

6. Questionable Procurement
Strategies
• Is it all the contractor’s fault?
• Are some contracts just too risky – should the
public sector have foreseen the folly of certain
contracts?
• Bigger and longer mean lower cost, right?
• Only long contracts attract the necessary
investment?

7. It’s not just outsourcing

8. Time to “revalue” PFI?
• Never universally popular, but…
• Is it broken and if so, what is the solution?
• Performance review
• Contract review
• What are the alternatives?
• How realistic is termination?
- Fault/ No fault
- Litigation risk
- Impact on PFI credits
- Accounting for compensation (Capital Finance Regulations)

9. Procurement and Contracts
• Each is equally important
• Procurement leads to a contract
• Public Procurement Law and Contract Law are very different
• Public Procurement is a hard set of statutory rules (plus some
overriding principles) set by the EU
• Contract Law is mostly (English) common law interpreted by the
courts
• Procurement is essentially a regulatory regime
• Vires?
• Please don’t confuse the two!

10. Why is procurement important?
• Over 50% of a Council’s annual spend goes on external supplies and
purchases rather than its own staffing costs
• Secures the single market (this is important!)
• Ensures value for money
• Ensures propriety
• Just how important is the procurement function in your Authority?
• How many procurement staff do you have compared to HR staff?
• What training do members receive on procurement?
• Still a culture of avoidance - exceptions good, compliance bad (eg
Land Transactions)

11. Getting Procurement Right – 10
point plan
• Never lose sight of the key principles – equal treatment, fairness,
transparency and proportionality
• Ask “how can we make the most of procurement?” not “do we have to?”
• It is all in the preparation
• Remember one size does not fit all
• Have appropriate, accountable and robust decision making in the process
• Understand the difference between selection criteria and award criteria
• Future proof the procurement
• Keep good records
• Use your lawyers appropriately, but do use them
• Don’t be surprised or panic if your decision is questioned

12. The Importance of Good
Contracts
• Protect the commercial bargain
• Codify risk
• Bad contracts can be just as enforceable
• The contra proferentem rule
• Void for uncertainty
• Removes the risk of dispute
• Removes the risk of the court asking: “What was the intention of
the parties?”
• Outside of consumer protection, you will not be protected from
unfair terms

13. Contract terms and risk
• Differentiate between procurement risk and contract risk, though sound
procurement may manage contract risks e.g. insolvency
• Try to view the contract as the agreed deal on risk issues
• The well drafted contract should clearly allocate the risk to one or other
parties or both
• Where necessary, it will provide a process for risk mitigation e.g.
performance thresholds, rectification
• Where necessary, it will provide a process for risk management e.g.
dispute resolution, change control
• But every risk cannot be anticipated – the contract needs to contain
appropriate review provisions to allow unforeseen risks to be dealt with
• Apply the Rumsfeld test

14. Getting Contracting Right – 10
point plan
• Call it what you like, but it is a contract
• Avoid legalese and use plain English
• Do not incorporate wholesale your tender documents
• Don’t reinvent the wheel but don’t put a cartwheel on a bike
• Future proof your contracts
• Understand the contractor’s point of view
• Keep under regular review
• Actively manage your contract and your contractor
• Don’t allow the contractor to become the client (whether by accident or
design)
• Don’t leave it to the lawyers!

15. Contract Management
• Keep an up to date conformed copy
• Capture all variations and minor changes (if necessary, keep a
separate log of minor changes)
• Understand what “open book” means – if not, agree it with the
contractor
• Utilise all rights of audit, inspection and “partnership” working
• Fully understand the rights to challenge monthly reports and
invoices
• Use shareholder rights in joint venture arrangements
• Engage with contract management team on issues relating to
enforcement, waiver and change management

16. Improving existing contracts
• Seek to rely upon “clear, precise and unequivocal”
review clauses
• Reconsider the risk profile and allocation
• Benchmarking and market testing
• “Best value reviews”
• Gainshare/painshare
• Review price indices
• Make the best use of break and extension clauses

17. How smart is your contracting
today?
• Are contracts too long?
• Do long term contracts disenfranchise SMEs, local businesses and
social enterprise? Have you explored new models of delivery?
• Small is beautiful but is it too expensive?
• Do you really understand risk?
– Procurement risk and contractual risk are not the same thing
– Risk transfer is not necessarily value for money or even effective
– Do you quantify risk and have plans for ownership, management and
mitigation?
• Do you manage your total supply chain?
• How are you incorporating Social Value to add value?

18. How smart will your contracting
be tomorrow?
• Rising technological complexity will increase
reliance on your suppliers
• Brexit – are you ready for a regulatory Wild West?
• Do you contract for key changes e.g. change of
law, demographic change, political flux
• Do we make or buy innovation?
• How good is your futurology?

19. Are we ready for the 4th
industrial revolution?
• Further digitalisation
• Artificial intelligence
• Widespread Automation
• Autonomous vehicles
• Anything or Everything (X) as a Service (XaaS) e.g. mobility
• Smart Cities
• Internet of Things
• 5G
• Distributed ledger technology (“Blockchain”)
• Cryptocurrencies (eg Bitcoin)

20. Any Questions?
Michael Mousdale
michael.mousdale@brownejacobson.com
0330 045 2499

21. All information correct at time of production.
The information and opinions expressed within this document are
no substitute for full legal advice. It is for guidance only and
illustrates the law as at the published date. If in doubt, please
telephone us on 0370 270 6000.
© Browne Jacobson LLP 2018 – The information contained within
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Jacobson. This document may not be reproduced without the prior
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