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Mark Greenburgh: With me now is Sarah Sasse, a partner in our commercial contracts team, specialising in public sector.
Sarah has just completed a secondment at the cabinet office, where she was working on the standardisation of government terms and conditions, and a new model contract for IT and BPO services.
Mark: Sarah, we have heard a lot recently about the new commercial principles launched by the cabinet office contracting with the government. What exactly are they?
Sarah Sasse: I think to understand what these new principles are, you really have to understand the reasoning for the introduction and the work behind developing these terms and conditions.
What they come out of is the realisation, certainly at central government level, that government wasn't exercising its procurement power as one customer,
and it is a drive, therefore, to standardise public sector contracting, both in terms of the policy issues around some of the key principles within contracts such as liability and termination rights.
But also around some of the policy that government wants to drive as a result of the current economic climate, so more accountability around open-book accounting, etc.
So what these new principles are is a set of standard terms and conditions which are really to be found in two places:
there is a set of standard boilerplate terms and conditions, so the things that us lawyers would be used to seeing in terms of entire agreement clauses, severability, those sorts of things.
And then we took those and modernised what was the OGC model ICT contract and used that to develop the new model agreement for IT and BPO services.
Mark: What impact do you expect that these are going to have on public sector service providers?
Sarah: I think only time will tell really what impact they will have. So we probably ought to be sitting here in a year or two's time to really have a feel for whether they have been rolled out across government contracting.
But when the precursor to the model IT agreement was introduced, the OGC produced a version for ICT contracts - probably six or seven years ago -
and actually what we found was some of the principles that introduced really shaped the market over the last few years.
So in terms of impact, I think some of the key principles we will definitely see enshrined in the new projects over the next 12-24 months.
Mark: Okay, so can you tell us what you think the benefits are going to be both for the public sector and the service providers?
Sarah: I think for in-house counsel within the public sector, the main benefit is first of all you're going to have access to a set of terms and conditions, or a new model agreement if you're doing an IT project, which is up-to-date.
It has all the drafting that you'll need around recent case law developments, new legislative changes, bribery act provisions, those sorts of things.
So actually, as a pressurised resource having to produce these contracts quite quickly, then you can go to those terms and conditions and you know they're going to be okay, they'll do the job.
I think the more important issue is that they actually reflect some of the latest policy thinking that is coming out of government.
So all the work that people are doing on things like open book accounting, on things like risk allocation around liability, around termination rights.
Also around how a performance regime should work, how many KPIs you should have and how they should work. So I think those are the main benefits for the public sector.
I think for the private sector it is initially a little more difficult to see what the immediate benefits are, although I think there is a benefit in a standardised approach once it has been rolled out and once the market has sort of levelled out.
Mark: And do you think that the private sector will benefit from that standardisation being adhered to across government?
Sarah: Yes, I think what we saw with the previous contract is that, although initially there was quite a bit of push-back from the supplier community who were resistant to some of the risk apportionment,
the beauty of a standardised approach is that you can decide internally how you are going to react and respond to that contract and the risk allocation.
You can decide, well, we can accept that liability cap because actually we will just price for it,
or we can accept those provisions because actually all through the governance mechanism we can actually find a way of mitigating the risk to us.
So I do think there is an advantage to that sort of standardised approach.
Mark: Okay, so that's the advantages. What, perhaps, would be the disadvantages?
Sarah: I think the disadvantages for the private sector side is sort of the opposite of what we've just been talking about, in that they will have developed.
You will, as a private sector provider, have developed a standard approach, which you will be used to rolling out when you're competing for projects. It will have internal approvals.
What we are going to see with the introduction of new principles, new terms and conditions, is that process is going to have to be gone through again because you are going to have to develop your own approach as a company to the new principles.
So I think initially there is going to be quite a bit of work to get your head around what it means, what's acceptable, what isn't.
I suppose the risk in the short-term is that as these new principles and terms and conditions are used on new projects,
how do you know what your competitors are going to be doing in terms of how they're going to be approaching that risk allocation,
about how they're going to be pricing for it, because one thing that has happened over the last few years with the principles that we've have around for a while is that the market has sort of,
as I said, stabilised, so people sort of know how everyone is approaching it.
So I think there will be a little more uncertainty in bidding, and I suppose that is a risk and a disadvantage for the public sector too, because anything that is novel carries with it some risk.
Mark: So people would price for that risk?
Sarah: Potentially, yes.
Mark: As I said in the introduction, you've just completed a secondment at the cabinet office, where you were working on the new model contract for IT and BPO services.
Can you tell us a little bit more about what we can expect from that?
Sarah: The thinking behind the new model agreement for IT and BPO services was really to take the drafting
and the principles which have been enshrined in the OGC model ICT contract, which had been around for six or seven years, and actually bring it up to date in a number of ways.
Make sure that it is fit for purpose in terms of meeting case law and legislative changes, but also to respond to some of the challenges that government has been facing over the last few years.
We will all have seen in the press and before the select committee that there have been quite a lot of IT failures and similarly in the outsourcing sector, so the thinking behind this is actually to see how a contract can adapt to those challenges.
So to respond to some of those challenges, what you will see in the new model agreement are things like much more detailed provisions around open-book accounting, for example.
Open-book accounting is a concept that has been around for a number of years, but we've not been very good in contracts that actually define what we mean, what level of detail that gives you the right to audit to.
The new contract actually sets out a very broad definition of open-book accounting, sets out what records and information the public sector customer will have access to, and also how far down the supply chain that extends. So that's an important area.
There are also a number of new remedies introduced for the public sector, so to give you an example the concept of a remedial adviser - not something that I'd ever come across in public sector contracting before -
but is something that had come out of the banking crisis and governments stepping in to the banks.
One of the principles that was enshrined in those contracts was this concept of a remedial adviser. So this is when things are starting to go wrong with the services or the contracts.
Normally we'd think of, well, if you're approaching termination perhaps the public authority could step in and take over the running of the contract, but that's not always very practical.
So this is another way, and what it seeks to do is appoint an independent third party to come in and make recommendations as to what steps could be taken to avoid the problems that are being faced.
Now, the sort of sting in the tail is that the costs of the independent third party, who could of course be a competitor of the service provider, are actually paid for by the service provider.
So there is an incentive there to make sure that things are put right as soon as possible.
Mark: So how do you think that these new principles are going to help with managing the reputational risk of contracting with the government, both the government departments and the private sector contractor?
Sarah: Working out how the new model agreement should respond to reputational risks was one of the key challenges facing the policy team designing the new principles.
We've all seen in the press over the last few years project failures, whether that's the NHS IT project, issues around the Olympics or, more recently, allegations of fraudulent practices.
So how can a contract respond to those sorts of issues? And there are a number of ways the contract seeks to do that.
One of the ways is through the new Bribery Act, looking at how far down the supply chain the contract can actually hit on prohibited activities.
But there is also a specific provision now introduced into the model contract where the service provider undertakes not to embarrass the customer,
not to bring the public authority into disrepute, or not to diminish the trust that the public might have in that public authority.
And I think it is going to be interesting to see from the service providers whether they are prepared to accept what is actually quite a wide undertaking which will expose them to risk.
Mark: So, you've been working *** the design of this contract. What sort of timeframe are we looking at for implementation?
Sarah: Currently there is a draft of the model agreement for IT and BPO services in circulation.
It has been issued as what the cabinet office are calling an exposure draft, so it's been issued for use on a number of pilot projects so that we can get feedback on a live environment.
There is also some consultation being undertaken with certain bodies such as Intellect, which are the IT providers trade association,
and also the procurement lawyers association, and that feedback is then being used just to fine-tune some of the drafting within the contract.
And the idea is that it should be issued more publicly in the next few months.
Mark: You've clearly been working *** the design of this contract, but will it or at least its principles, be mandated for use by government?
Sarah: It's funny, when I was working at the cabinet office, that is the question we were most frequently asked: will it be mandated?
And the short answer is no. There is no requirement that this is used,
even for IT projects, but I think what the cabinet office is hoping is that people actually see it as a very useful reference point - for IT projects it is a ready to use contract,
so all the schedules are drafted, and also for some of the principles that we've been talking about.
It will be a go-to document that people will use because the drafting is already there available for use.
Mark: So finally, can you tell us what you think the relevance is going to be for in-house counsel of working with these new principles?
Sarah: I think for in-house counsel in the public sector, I would see the new model contract and also the standards terms and conditions - the boilerplate, which will also be rolled out over the next few months - as a really useful toolkit.
So for those doing IT agreements, clearly there is a ready to use agreement, but also if you're just doing the more complicated agreements,
or you want access to the latest thinking on the Bribery Act or the latest thinking on remedies, caps on liability, termination rights,
then getting a copy of the agreement which you can have on your desk as a useful reference point is probably what I would recommend.
Mark: So it's ready to go, it's ready to use.
Sarah: Absolutely, yes. For in-house counsel in the private sector, I think the immediate challenge and the next step I would recommend is that you need to get to grips with the principles enshrined in the new model contract
and also in the new terms and conditions, because ultimately your competitive advantage is at stake.
When you're bidding for these contracts, normally you have to mark these contracts up.
You need to decide what your internal policy is to the new aspects that have been introduced. So things like the remedial adviser appointment that I talked about,
how you are going to respond to that, is it something that you are prepared to accept, or because they could be a competitor,
will you accept the principle only if there are suitable confidentiality provisions, "Chinese walls" are put in place.
So that is the next step that the private sector community need to do, which is to understand how they are going to respond and indeed price for some of these new principles.
Mark: Sarah Sasse, thank you very much.