Public procurement: A fresh chance to challenge

The new European directive on remedies in public procurement will be implemented in the UK by the end of this year. The Office of Government Commerce has already published draft regulations, which in most areas are expected to be close to the final form. This legislation will be of interest to all those involved in public sector construction projects, as these are where the rules will apply.

The overall aim of the legislation is to improve the effectiveness of the review procedures once a public contract has been awarded. This will be achieved in two ways.

First, it will harmonise the mandatory standstill period that applies between the notification of the award decision and formal conclusion of contracts (that is, the period when award decisions can be challenged). Previously, this was based on case law and so was different in each country.

In the UK, the harmonised standstill period would increase the level of detail public bodies are required to give bidders. At present, contract award letters must state the award criteria, the recipient’s score and the name and score of the successful bidder.

Under the new regulations, public bodies would also need to include a statement of the standstill period and provide each bidder with reasons for the decision. The breadth of this latter provision is not clear, but for unsuccessful bidders it is likely to include why they were unsuccessful and the characteristics and relative advantages of the successful bid.

Second, the directive introduces a new remedy of “ineffectiveness” for contracts that have been awarded in breach of procurement rules. This means that, in some circumstances, a court would be able to set aside contracts entered into between public bodies and suppliers. Orders to shorten the length of contracts and financial penalties would be possible.

The concept of ineffectiveness is the most significant change to the rules, as if a supplier successfully applies for a contract to be declared ineffective, this could have serious implications for both parties.

The public body may have run a lengthy tender process, work may have commenced and the works may be essential to the public body. The successful bidder may have incurred costs in starting work that it planned to recover over the life of the contract; it may have recruited additional staff and may not have bid for other contracts after winning the one in question.

A court can rule a contract ineffective on four grounds:

• The direct award of a contract with no Office Journal advert
• A contract was entered into under a framework agreement or dynamic purchasing system in breach of rules
• The award of a contract that should have been suspended
• A contract entered into before the end of the standstill period.

In the last two circumstances, there must also have been a further breach of the procurement rules and that breach must have affected which bidder was awarded the contract.

The directive gives countries the choice to implement the rules retrospectively (from the date contracts were entered into) or prospectively (from the date of the court order). The draft says ineffectiveness would be prospective only, but this must be accompanied by a fine for the public body.

Courts would have discretion not to render a contract ineffective in exceptional cases – the public body would have to prove that the cancellation would not be in the public interest. If a court takes this option, it must either impose a financial penalty on the public body or shorten the duration of the contract, or both.

The time limit for a supplier to bring a claim for ineffectiveness is six months from commencement of the contract, although this would be reduced to 30 days if tenderers were notified of the conclusion of the contract. As such, the provisions are focused primarily on protecting suppliers that did not know of a contract, so could not have contested a decision before it was entered into.

Bidders should welcome the new rules, as they strengthen the “level playing field” requirements that the public procurement rules were meant to achieve. For public bodies, the rules widen the scope of the remedies available to aggrieved bidders. It will, therefore, make compliance with procurement rules even more critical.