New UK Regulations on Remedies for Breach of Procurement Regulations

The new regulations
The new Public Contracts (Amendment) Regulations 2009 came into force on 20th December 2009. They introduce important new remedies for breach of the EU procurement rules.

Well, what was the old system?
Under the previous system, before a contract was finalised (i.e. signed), an interested third party alleging a breach could in theory apply to the High Court for an order to set aside or suspend the contract award procedure in question.

So, what was the problem?
The old rules made it difficult for interested parties to challenge a contract once it has been signed, even if that contract was awarded without any prior publicity or competition, in flagrant breach of the procurement regulations. This was because if the contract had already been entered into, the rule was that the contract couldn’t be disturbed which meant the complainant's potential remedy was limited to financial damages (which can be hard to establish).

But isn’t that why they introduced a Standstill Period and Alcatel Letters (see Birkett Long Procurement Law Jargon Buster)
Well, yes, up to a point. The Public Contracts Regulations 2006 required that, after selecting the successful bidder, the awarding authority or utility had to inform all unsuccessful bidders in writing of that decision and the underlying reasons, and then wait at least 10 calendar days before concluding a contract with the successful bidder. However, this only partly addressed the problem because an authority could still in practice enter into a contract directly with its preferred supplier without (or perhaps even despite) any prior advertising or competition, leaving a disgruntled party without any effective redress.

Wasn’t it possible to get an injunction to stop authorities doing this?
In theory, it was possible under the old rules for a dissatisfied third party, if they had sufficient evidence, advance warning and money to apply to the Court for an interlocutory injunction to stop the authority signing the contract. However, this inevitably was only on terms that the applicant put up security sufficient to reimburse the authority its losses if, on a full hearing, the Court decided the applicant was wrong. In practice, this acted as a serious discouragement.

So what’s new then?
Well, the current 10 day standstill period remains, however, where non-electronic means of communications are used, the standstill period must be a minimum of either 10 days from receipt of communication or 15 days from despatch of communication commencing at midnight at the end of the day on which it is sent to unsuccessful bidders.

Also the standstill notice must include a full debrief including reasons for the award and a statement of the standstill period should be included with the notice. However, this notice need only be sent out to bidders and candidates.

OK, but how does that deal with the problem of authorities still ignoring the rules?
This time the EU is adding some teeth to the regulations that will mean authorities risk serious consequences if they ignore the rules. In addition to the old remedies the new regulations introduce the new remedy of ineffectiveness and this is available following contracts awarded following certain serious rule breaches:

• Breach of OJEU advertising obligations
• Combined breaches of the procurement rules and the rules regarding the use of the standstill provisions
• Breach of mini-competition rules when awarding “above threshold” call-off contracts
“Ineffectiveness”-- sounds a bit vague. What does it mean?
You’re right; it’s a novel concept in the UK. However, in practice it’s likely to mean remedies such as

• Cancelling the contract; or
• Shortening the length of the contract;

Will authorities be fined for breaking these rules?

Potentially yes. The Courts can in the case of an ineffectiveness ruling also impose a civil financial penalty against the contracting authority, which must be “effective, proportionate and dissuasive”. So, could be big £££!

Any exceptions?
If the Court is satisfied that for reasons of overriding public interest the effects of the contract should be maintained when the Court will instead impose a fine and/or shorten the duration of the contract in question.

So how can I stop an authority simply ignoring me? Do I still have to risk an interlocutory injunction and security undertakings?
Good news for dissatisfied bidders (potentially less good news for authorities) - under the new rules where proceedings are launched in order to challenge an authority's award decision and the contract has not yet been entered into, the contracting authority must not enter into the contract. In practice this may mean significant leverage can be achieved by bidders for the price of a Court fee to issue a claim notice. Suspension of the authority's right to enter into the contract continues either until the Court makes an interim order lifting the suspension or until the proceedings are determined or discontinued.

As an authority how can we limit the risk of “Ineffectiveness”?
In general the very best protection against this is to stick to the rules. However, the following offers some protection.

A new Voluntary Transparency Notice provides protection for unadvertised procurements – if the contracting authority issues a voluntary transparency notice and observes the minimum standstill period before concluding the contract this will provide immunity from any subsequent challenge of ineffectiveness. This of course runs the risk that a potential bidder may challenge the procurement during the standstill period.

The parties may also pre-agree ineffectiveness terms to specifically provide for how the contract could be wound up. Certainly, well advised authorities –and those contracting with them and their funders—are likely to require pre-agreed terms to stipulate what is to happen if a contract has to be unwound because of ineffectiveness. Concepts similar to the “Relevant Discharge Terms” agreed for void contracts pursuant to the Local Government (Contracts) Act may be appropriate.

What about procurements started before 20 December 2009? Are they caught by the new rules?
No, the Regulations are not retrospective: they will not affect any award procedure commenced before that date. For this purpose, an award procedure is deemed to have commenced before 20 December 2009 if, prior to that date, the authority submitted a contract notice to the Official Journal of the European Union (“OJEU”), published any other form of advertisement seeking offers or expressions or interest, or simply contacted any economic operator in order to seek expressions of interest or to respond to an unsolicited offer received from that operator.

In summary then?
These new rules make significant changes to the current public procurement system. This is likely to encourage stricter compliance with rules by public bodies while raising the risk of challenge when the rules are not followed. Appropriate legal advice should be taken by all concerned to avoid the risks presented by the new regulations and to ensure proper redress in the event of breach.