Transparency in public contracts v commercial prejudice – how to strike the balance?
With organisations across all sectors getting ready for the implementation of the Procurement Bill, the focus on transparency and the publication of a range of mandatory notices is a key issue to look out for, for example the requirement to publish reports on supplier performance (clause 71).
Whilst we know when those notices will be required, we are still awaiting the detail of what should be included and the scope of information that will need to be published. So, how far will the new regime take the concept of transparency, and will this be at the cost of commercially sensitive information?
What do we know so far?
Helpfully, the Procurement Bill explicitly provides that information does not need to be published if it is 'sensitive commercial information' and there is an 'overriding public interest in it being withheld from publication or other disclosure' (clause 94). 'Sensitive commercial information' is defined as information that either constitutes a trade secret, or information that 'would be likely to prejudice the commercial interests of any person if it were published or otherwise disclosed'.
There is clearly an understanding in the Procurement Bill that there is a balance to be struck between transparency in public procurement and protecting the commercial interests of both contracting authorities and suppliers, and safeguarding a competitive marketplace for public contracts.
How can FOIA help?
Those contracting authorities who deal with requests under the Freedom of Information Act 2000 (FOIA) will note that the wording in the Procurement Bill is very similar to the exemption on publishing commercially prejudicial information under section 43 FOIA. For those wanting to understand where the line is drawn between transparency and protecting commercial interests under the Procurement Bill, FOIA would be a useful place to start. By taking a look at what FOIA says, and how that is interpreted by both the courts and the regulator, the Information Commissioner's Office, should help shape the way you approach publication of notices.
Section 43(1) of FOIA allows the withholding of information that would constitute a trade secret. The more commonly used section 43(2) allows information to be withheld from publication if disclosure would, or would be likely to, prejudice the commercial interests of any person, company, or the public authority itself.
FOIA requires the following issues to be addressed when looking to rely on section 43(2) FOIA, and until we have further information on the detail of the required transparency notices, this should be a useful guide to how to strike the balance under the new Procurement Bill:
- Identify the commercial interest that you are looking to protect and withhold from publication, for example through redaction. A 'commercial interest' relates to a person's ability to 'participate competitively in a commercial activity'.
- Identify the prejudice that would be caused to that commercial interest if the information is published.
- Demonstrate that the disclosure would or would be likely to cause that prejudice, i.e. the prejudice is more probable than not, or there is a real and significant risk of prejudice.
- Consider whether the public interest lies in maintaining the exemption and protecting those commercial interests, or in favour of greater transparency and accountability in the spending of public money.
Contractual Performance and financial remedies
Looking specifically at the requirement to publish yearly reports on supplier contractual performance (clause 71), there are concerns around how much information will be required to enter into the public domain, both in relation to any criticisms of supplier performance, and any subsequent remedies the contracting authority may have under the terms of the contract.
The recent First Tier Tribunal case of the Department for Work and Pensions v (1) Information Commissioner (2) John Slater looks specifically at this issue. Again, whilst this decision is based on the FOIA legislation, it gives a helpful indication of where things might land when we have further information in the form of secondary legislation and guidance.
The case centred on the outsourcing of independent health assessments which establish whether an individual qualifies for certain benefits known as Personal Independence Payments. The outsourced contracts set out a number of agreed KPIs, alongside mechanisms through which financial remedies would be available to the DWP if the suppliers did not meet those KPIs. These included 'service credits' and 'no pay' amounts.
Performance issues were discussed at monthly performance meetings and minutes of those meetings contained 'extensive and detailed performance information including details of performance against service levels, updates on complaints, customer satisfaction and continuous improvement and progress against action points.' Whilst those minutes had been published, including information about performance levels and narratives explaining any failings, they had been redacted to exclude the actual figures applied for individual service credits and no pay amounts. The dispute arose over whether the publication of those amounts would prejudice commercial interests and could be withheld under section 43 FOIA. The court said:
- 'Commercial Interests' should be interpreted broadly and relate to 'a person's ability to participate competitively in a commercial activity'. A commercial activity involves 'selecting, negotiating with and entering into contracts with private sector firms'.
- Prejudice to a competitive tendering process would clearly fall within the scope of prejudice that might be caused to the commercial interests of the DWP, as would any prejudice to its ability to carry out effective contract management.
- To release the financial details of the service credits and no pay amounts might cause a distortion to any future re-tendering process. This would include an unfair competitive advantage to other bidders, as the information in question could allow competitors to calculate the current suppliers' prices by way of reverse engineering and allow competitors to tailor future bids accordingly.
- As a result of a distorted tender process, the contracting authority could not be assured it was getting best value for money: given the public interest in ensuring that high value public contracts are awarded to the right suppliers at the right price and on the right terms, there was a reasonably strong public interest in withholding that financial detail.
- On that basis, the DWP was not required to publish the financial information.
As much of the narrative around supplier performance had been disclosed already, the Tribunal was not asked to consider whether releasing the full detail of those discussions would prejudice either the contracting authority's or the suppliers' commercial interests, but the case gives a clear indication of the balance of transparency and commercial interests in relation to financial payments and remedies arising from underperforming suppliers.