Challenging awards of public sector work: Hold it right there

It is two years since new rules came into force in the UK implementing the Remedies Directive to improve the effectiveness of procedures for challenging the award of public sector contracts. The appropriate rules are contained in the Public Contracts (Amendments) Regulations 2009 and the Utilities Contract (Amendments) Regulations 2009, (with an equivalent in Scotland).

The purpose of these is to ensure tenderers are treated in a transparent and fair way.

The rules apply to contracts tendered by:

• A public sector body or utility - the “contracting authority”
• Where they are procuring works, services and supplies
• The estimated value of the contract is above the relevant threshold.

The thresholds have just been reset from 1 January at just over £4.3m for works and between £113,000 and £347,000 for services. However it is worth noting the recent Scottish case of Sidey vs Clackmannanshire council. There, a judge dealing with a challenge to a below threshold contract confirmed that if the contract had had cross border interest (which it did not) it could also have fallen within the application of these rules.

The rules introduced two new remedies:

• Automatic suspension of the tender process while a challenge is pending
• Declaring a contract “ineffective” where it has already been entered into but contrary to the rules.

There have been a number of cases in the past two years where these provisions have been tested and certain ground rules set.

Automatic suspension

Automatic suspension is in effect an automatic injunction. Prior to the 2009 regulations, a party had to obtain an injunction if it wished to prevent the authority from signing up the contract. This was difficult given the tests a tenderer had to satisfy and the fact that, if unsuccessful, it would be liable for any costs incurred by the authority in delaying the process.

The presumption is that a contract will be declared ineffective if there is a clear breach of the contract award procedures unless exceptional circumstances apply

Automatic suspension has changed this. As soon as a writ is issued challenging the process, the tender process is suspended. The burden is then on the authority to apply to the court to lift this. There have been a number of cases that have dealt with such an application to lift the suspension. It is generally accepted that the test the authority must meet to get such a temporary order lifted before the challenge is dealt with, is 1. whether there is a serious case to be tried and 2. that the balance of convenience lies in lifting the suspension and allowing the contract to be placed. This involves determining whether damages are a sufficient remedy for an unsuccessful tenderer such that the contract award can proceed.

Given the dramatic effect maintaining a suspension can have on the ongoing provision of services, often the balance lies in favour of the lifting of the suspension.
Remedy of ineffectiveness

A dramatic new remedy brought in by the 2009 regulations is the right to have a contract which has been entered into, in breach of the procurement rules, declared ineffective. Previously a party could only claim damages once a contract had been entered into. To obtain a declaration of ineffectiveness there needs to have been some evident non-compliant behaviour on the part of the contracting body. This includes failure to publish an OJEU notice where required.

The presumption is that a contract will be declared ineffective if there is a clear breach of the contract award procedures unless exceptional circumstances apply. In Alstom Transport vs Eurostar 2011, Alstom tried to have the contract declared ineffective. This was refused as it was concluded a proper notice had been published in the Official Journal and there had been nothing to stop them from bringing proceedings before the contract award. This case underlines the fact that such a remedy is a fall-back where the claimant has not been able to pursue other remedies before the contract award.

The time limits for seeking a declaration of ineffectiveness are tight - 30 days from the publication of the contract award notice or within six months of the contract being entered into.

The rules also give the courts power to regulate the interests of the parties to the contract which is being declared ineffective - for example, by way of compensation. Parties may also agree by separate contract how they will deal with such ineffectiveness if it arises. It is not yet clear how these will operate in practice.

This year is likely to bring further challenges as new infrastructure plans are converted into tenders.

Lindy Patterson is a partner in Dundas & Wilson