24 August 2006 | Rebecca Ellinor

The Department of Health is facing questions over the legality of its OJEU notice concerning the outsourcing of NHS Logistics and parts of the NHS Purchasing and Supply Agency.

The notice, which was published just over two years ago on 19 August 2004, said: "The DH is considering a potential private sector partnering of the supply chain functions of the NHS Logistics Authority (NHSLA) and certain procurement functions of the NHS Purchasing and Supply Agency (Pasa)."

On the scope of the deal it advised: "The contract is currently expected to cover procurement and delivery services in respect of goods the value of which, in 2005, is projected to be approximately 715,000,000 GBP."

However, last month DH confirmed the value of the deal is now £3.7 billion a year. When asked if it planned to issue a revised notice as a result of the increase in value, it told SM there was no need.

A spokesman said: "The OJEU is, and always has been for an integrated procurement and supply chain organisation covering all spend within the in-scope categories, so there is no need to reissue a revised one."

SM understands DH took legal advice and was told it did not need to issue a new notice, but experts and industry insiders disagree.

One Whitehall source told SM: "Speak to any EU procurement expert and they'll confirm that it can't possibly be a compliant procurement."

David Gollancz, a partner in the public sector group at law firm Field Fisher Waterhouse, added: "It would be difficult to see how the contract price could significantly increase without a readvertisement."

He said new adverts are required if fundamental aspects of the contract change, such as duration and price.

Fred Harvey, CIPS' adviser on the application and interpretation of EU procurement rules, told SM: "The rules indicate that if the contract you propose to let is significantly different from the advertised requirements, then you should start the process again and issue a new tender notice.

"The test is: could the new requirements attract responses from companies that did not respond to the original notice, or could the new notice have affected the way in which companies responded." The legality of the original notice will be tested only if the DH confirms the deal with its preferred suppliers DHL/Novation without retendering and an aggrieved party or the European Commission (EC) challenges.

SM has been told that some of the unsuccessful bidders plan to do this during the 10-day standstill period after the work is awarded. Suppliers and supplier representatives contacted by SM refused to comment.

It is thought that while UK companies might not complain, because they could risk losing future business, international firms might do so.

If a legal challenge is upheld, the DH will need to start the process from scratch.

SMaug2006