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31 January 2018

Conflicts of Interest

Conflicts, career moves and the Brexit brain drain

Many readers will be aware of the recent case involving a threatened procurement challenge which led to the scrapping of a contract awarded by HS2 Limited involving the High Speed 2 rail project (“HS2”).   For those who missed it, Mace was the unsuccessful bidder to become a development partner in a £170 million contract for Phase 2B of HS2, for which American firm CH2M had originally been selected as preferred bidder.

HS2 Limited being a subsidiary of the Department for Transport, the award process was governed by the EU Public Procurement rules (implemented in the UK by the Public Contracts Regulations 2015 (“PCRs”)).  Receiving a tip-off from a whistle-blower, Mace alleged that a member of CH2M’s bidding team had a personal conflict of interest.  It is understood that the individual in question had worked previously at HS2 Limited and may therefore have been privy to confidential information to which other bidders, such as Mace, were not party.

This caused a problem under the PCRs.  Regulation 24 is express in requiring public purchasers to “take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators”.  Conflicts can arise in relation to a wide range of interests, including direct or indirect financial, economic or other public interests which might be perceived to compromise their impartiality or independence. 

HS2 Limited alleged that  fault for the conflict of interest arising in this instance lay with CH2M, whom they claimed had failed to disclose the true extent of the individual’s involvement in their bid.  Indeed, bidders are usually subject to mandatory disclosures of any conflict as part of the rules of tender.  Faced with the threat of a legal challenge to its award from Mace, CH2M ultimately withdrew its bid.  HS2 has re-launched this project, apparently (and predictably) with strengthened safeguards around any possible conflicts on this occasion.

This sorry tale sounds a number of warnings for purchasers and bidders alike as well as questions for the future conduct of procurement procedures, particularly in the post-Brexit environment.

The first is the most obvious.  Buyers and bidders must be diligent in investigating and disclosing conflicts.  This case related to a bid team member having previous experience within the purchaser (moving from the public to private sector).  Bidders should also consider whether they have had an involvement in any aspect of the purchaser’s procurement planning (for example preparing specifications) which could give them an unfair edge on their rivals.  Such involvement could also lead to disqualification (under Regulation 41). 

There are examples of conflicts arising from employee movements in the other direction.  This happened, for example, in relation to an investigation by the Competition Commission (one of the predecessor regulatory bodies to the current Competition and Markets Authority) into the airport monopoly enjoyed by BAA.  BAA successfully challenged a decision ordering it to sell off airports on the basis that a member of BAA’s evaluation panel had formerly acted as an advisor to one of its main competitors, the Manchester Airport Group.  Bidders should be alive to the track record of those adjudicating their bids.  LinkedIn may be a useful resource in this regard. 

In practice, it is common for employees to move around and to cross the boundary from public to private sector and to move between competitors within the private sectors.  Conflicts will not be so uncommon.  This leads us to speculate as to whether Brexit could exacerbate matters further.  Anecdotally, we are hearing grumblings from companies within the construction and engineering sector that they are struggling to recruit staff from other EU countries following the outcome of the Brexit vote (see our earlier piece on this here: https://www.charlesrussellspeechlys.com/en/news-and-insights/insights/constuction-engineering-and-projects/2016/building-a-better-britain-brexit-and-the-construction-sector/ ).  Things may be incestuous now, but with a smaller pool of appointees to choose from, this type of problem could become more frequent.     


This article was written by Paul Henty. For more information, please contact Paul on +44 (0)20 7427 6506 or at paul.henty@crsblaw.com.

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