Council warned against using novation on housing contract

13 October 2010

13 October 2010 | Angeline Albert

Lawyers have told Norwich City Council it would be breaking EU procurement rules if it were to transfer contracts from a bust supplier to another provider without a full tendering process.

The authority sought legal advice after social housing firm Connaught went into administration on 8 September. Connaught supplied building maintenance and other services to councils and housing associations in the UK. Many hoped they would be able to transfer work straight to a new contractor under the legal process of novation, which enables one supplier to be replaced with another while the existing contract continues. Norwich had a £24 million building and maintenance deal with Connaught.   

The authority had received an expression of interest from a firm offering to do the work under the same terms and conditions as Connaught, but EU rules prevented a quick transfer. Norwich must now go through a full tendering process for temporary contracts to be let for six to 12 months. A tendering process will also take place for permanent deals. Norwich has already let emergency contracts (lasting six to eight weeks), including those for housing repairs and maintenance.

Councillor Alan Waters, who is responsible for the council's procurement budget, said the authority discovered the legal process of novation could not be used.

“When we heard that other councils were looking to transfer Connaught contracts using novation, we checked with an EU procurement legal specialist and were told we could be challenged by other companies who may want to bid for the work. We were told we would risk infringing EU procurement rules. It is because there is a market for the services that we are providing that we must go through full tender.” 

He added: “Our experience throws up the issue of the way public sector procurement regulations can be rather inflexible. We are thinking about how we can get the government to think about the circumstances in which a degree of flexibility in public sector procurement could be approached.”

As reported by SM last month, procurement lawyers warned that public sector organisations transferring the contracts of companies in administration face a number of legal challenges.

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