UKSC 45
On appeal from:  EWCA Civ 326
Edenred (UK Group) Limited and another (Appellants) v Her Majesty's Treasury and others (Respondents)
Lord Neuberger, President
JUDGMENT GIVEN ON
Heard on 13 and 14 May 2015
Jason Coppel QC
(Instructed by Pinsent Masons LLP)
Philip Moser QC
(Instructed by Government Legal Department)
LORD HODGE: (with whom Lord Neuberger, Lord Mance, Lord Sumption and Lord Carnwath agree)
The facts in more detail
(i) The procurement of the contract between NS&I and Atos
"including all processing of customer interactions and servicing (eg sales, after sales management and payments including via telephone, internet and mail); service management; IT development and implementation; and other services (eg complaint handling, channel management, customer management, print and document management, customer market research and analysis, campaign management, compliance, management information etc), and other related ancillary services that support the business operation of NS&I."
The text went on in a passage which is of significance in this appeal to describe NS&I's business to business services (which it called "B2B services"):
"In addition NS&I now delivers similar operational services (so called B2B services) to other public sector organisations. We intend to expand this B2B service during the lifetime of the contract to deliver to other organisations, potentially resulting in significant growth of the outsourced operational services. NS&I intends to structure the contract so that it may be used by other central government departments (including their executive agencies and non-departmental public bodies) and by local authorities. NS&I also intends to permit the contractor to make the services provided under the contract available to private sector entities provided that this does not affect the provision of service to NS&I."
The notice listed 50 entries from the common procurement vocabulary.
"Contract range up to approximately 2,000,000.000 GBP, with a likely contract range of approximately 1,250,000,000 and 150,000,000 GBP, depending upon the uptake of B2B services.
Estimated value excluding VAT:
Range: between 1,250,000,000 and 2,000,000,000 GBP."
(ii) The TFC initiative
"the government considered that the NS&I option had real and particular advantages in terms of simplicity for parents and childcare providers, offering security for parents through a trusted brand with all funds guaranteed by the government, and speed of delivery."
The response concluded that while some of the other factors might arguably be said to tend in favour of other options, they did not outweigh the advantages of the NS&I option.
The legal proceedings
Whether the modifications are "substantial" – extending the scope of the contract
"Contracts and framework agreements may be modified without a new procurement procedure in accordance with this Part in any of the following cases:
… (e) where the modifications, irrespective of their value, are not substantial within the meaning of para (8)."
Regulation 72(8) provides:
"A modification of a contract or a framework agreement during its term shall be considered substantial for the purposes of paragraph (1)(e) where one or more of the following conditions is met:
(a) the modification renders the contract or framework agreement materially different in character from the one initially concluded;
(b) the modification introduces conditions which, had they been part of the initial procurement procedure, would have –
(i) allowed for the admission of other candidates than those initially selected,
(ii) allowed for the acceptance of a tender other than that originally accepted, or
(iii) attracted additional participants in the procurement procedure;
(c) the modification changes the economic balance of the contract or the framework agreement in favour of the contractor in a manner which was not provided for in the initial contract or framework agreement;
(d) the modification extends the scope of the contract or framework agreement considerably; …"
Those conditions derive from and codify the jurisprudence of the CJEU in Pressetext Nachrichtenagentur GmbH v Austria (C-454/06)  ECR I-4401, paras 34-37.
"The nature of the operational services that Atos will be providing to support the delivery of childcare accounts is essentially the same as the nature of the services which are supplied by it to NS&I for existing banking, accounting and payment products and which would have to be supplied for any new product delivered by NS&I, whether or not it was a new type of savings account to raise money for HMT or a bank account to be utilised by another government department – or a payment service offered to another government department akin to the ELPS [which is the Equitable Life Payment Scheme that NS&I operates for HMT]".
As I discussed in para 13 above, NS&I also included provisions in the Atos contract that restrict the scope of amendment to ensure that such modification does not alter the economic balance of the contract or increase the profit margin available to Atos.
Clear, precise and unequivocal review clauses
"Contracts and framework agreements may be modified without a new procurement procedure in accordance with this Part in any of the following cases:-
(a) where the modifications, irrespective of their monetary value, have been provided for in the initial procurement documents in clear, precise and unequivocal review clauses, which may include price revision clauses or options, provided that such clauses –
(i) state the scope and nature of possible modifications or options as well as the conditions under which they may be used, and
(ii) do not provide for modifications or options that would alter the overall nature of the contract or the framework agreement; …"
The regulation appears to draw on CAS Succhi di Frutta v Commission of the European Communities (C-496/99)  ECR I-3801, in particular at paras 111 and 118. But it is not simply a codification of prior CJEU case law.
"Contracting authorities should, in the individual contracts themselves, have the possibility to provide for modifications to a contract by way of review or option clauses, but such clauses should not give them unlimited discretion. This Directive should therefore set out to what extent modifications may be provided for in the initial contract. It should consequently be clarified that sufficiently clearly drafted review or option clauses may for instance provide for price indexations or ensure that, for example, communications equipment to be delivered over a given period continues to be suitable, also in the case of changing communications protocols or other technological changes. It should be possible under sufficiently clear clauses to provide for adaptations of the contract which are rendered necessary by technical difficulties which have appeared during operation or maintenance. It should also be recalled that contracts could, for instance, include both ordinary maintenance as well as provide for extraordinary maintenance interventions that might become necessary in order to ensure continuation of a public service."
The recital gives as examples of the envisaged review clauses provisions allowing for price indexation, or adjustments for technological change and for maintenance. Those examples are not exclusive but they may indicate the general nature of the modifications that regulation 72(1)(a) envisages. It seems clear from the CJEU's judgment in CAS Succhi di Frutta at para 126 that the regulation would extend to a provision or clause such as for the substitution of fruit which was in issue in that case. The regulation also requires specification of the scope and nature of possible modifications and the conditions under which they may be used.
The appellants' alternative argument
"(1) Childcare accounts may be provided by any of the following –
(a) the Commissioners for Her Majesty's Revenue and Customs,"
(b) a person or body with whom the Commissioners have entered into arrangements for the provision of childcare accounts, and
(c) if the Treasury so determine, the Director of Savings ("the Director")." [ie NS&I]
(2) If the Director provides childcare accounts, the Director must in doing so act in accordance with any arrangements between the Director and the Commissioners with respect to the provision of childcare accounts."