The use of large up-front fees and disproportionate deposits has already resulted in significant cost consequences for one care provider.
What the case says
The case helpfully does confirm that costs incurred under contracts called-off from a framework agreement are incurred “under” that framework agreement (and not just “under the called-off contract”). Some doubt had been created about this by the LAPN case**. This had led to concerns over whether it was sufficient to consult leaseholders and tenants paying variable service charges (referred to as “leaseholders” in this briefing) about just the framework (rather than about the underlying contracts as well).
It also follows from the fact that the costs are incurred “under” the framework agreement (which typically lasts for up to 4 years), and not just under a called-off contract (which may last for less than 12 months), that the framework agreement is a “qualifying long-term agreement”.
The problem the case doesn’t solve
The problem that the Kensington and Chelsea case does not solve is that concerning the use of framework agreements that have already been set up (typically by a buying club). In this case, it is simply not possible to carry out the necessary consultation. This means that either a dispensation is needed for the framework agreement to be able to be used or the landlord will need to limit the recovery of costs from leaseholders to £100 per service charge payer per year.
For qualifying long-term agreements “for which public notice is required” (ie an OJEU notice), the first stage of the leaseholder consultation has to take place before the OJEU notice is submitted. The notice of intention to enter into the framework agreement itself must state that the reason why the landlord is not inviting leaseholders to propose potential contractors is because “public [ie OJEU] notice of the relevant matters is to be given” (ie in the future).
Since the qualifying long-term agreement is the framework agreement itself, its value will always, in practice, be above the EU tendering threshold (of £4,104,394 for works). Even though a particular contract being called-off might have a value below the EU tendering threshold, the fact that it is being called off from a framework with a value above the EU tendering threshold means that it will be treated as a qualifying long-term agreement “for which public notice is required”.
The need for precision
The Kensington and Chelsea case also contains a warning. In order to be able to argue that costs are incurred “under” a framework agreement, both the framework agreement and the leaseholder consultation materials must identify the prospective works with “sufficient particularity”.
It would not, therefore, be possible to set up a generic framework agreement without identifying a specific programme of works to be carried out to properties under it. Sufficient precision is needed over the works that are to be covered by the framework agreement and the costs to be incurred in relation to those works for the leaseholder consultation to be meaningful.
For further information
For advice on framework agreements and leaseholder consultation during a procurement process, please contact Andrew Millross.
For advice on leaseholder consultation generally, please contact Emma Hardman.
*  0395 UKUT
** LON/OOAE/LDC/2006/0079 and other references
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