We sometimes offer pilot projects, trials or wholly “free of charge” goods, works or services to our clients. It is a common situation for companies wishing to break into new markets or expand their market share, to consider such commercial options with a view to annihilating their competition.
The Public Sector is no different. How can an Authority resist getting some needed service or product for free? And, if the product or service is provided at no cost, can the Authority then avoid the provisions of the Public Contracts Regulations 2015 (PCR)?
Of course, introductory arrangements at no cost are usually linked to a contractual obligation to purchase later. Such contracts clearly fall within the scope of the PCR. Depending on the value and subject matter of the contract, a failure to advertise such a contract (or to use a valid framework) would amount to an illegal direct award, open to a range of legal remedies. But what happens if there is no such direct contractual commitment?
Recent Judgement
A recent case in Italy has provided more guidance on this issue. We now have clarification of how “free of charge” contracts are to be treated by the procurement rules.
The PCR defines a public contract as “contracts for pecuniary interest concluded in writing between one or more economic operators and one or more contracting authorities and having as their object the execution of works, the supply of products or the provision of services”. There has never been much doubt that “pecuniary interest” is wider in scope than just monetary payments.
In this case, the Court found that just because the service was provided “for free”, the supplier still received a “significant economic advantage” from the relationship with the public authority under the arrangements. In addition, whereas there was no charge for the service, the supplier in this case did charge a nominal fee to cover “transport costs”. The Court ruled that these transport costs alone, which were paid by a public sector grant, were sufficient to bring the arrangement into the scope of the PCR.
The Implications
This case confirms that we need to look at “no cost” or “free” contracts offered to public bodies very carefully. Any attempt to circumvent the normal procurement process through such a route is likely to fail. Furthermore, if we find such a situation involving one of our competitors, we need to challenge it immediately. You never know, you may end up with the contract as a reward for your diligence.
In summary, there does not need to be a direct economic benefit to the supplier for the contract to fall within the PCR provisions. If you are considering the way in which you might overcome a competitor by such an approach, please do have a no-obligation chat with us first about what you can do and the pitfalls you should avoid, on 01227 860375.
