New remedies for public procurement

Central government, local authorities and other public bodies, along with those that that wish to contract with them, need to be aware of a tightening up of the remedies regime which applies in the case of a failure to comply with the public procurement legislation.

The Public Contracts Regulations 2006 reflect the requirements of the European Union that where public bodies enter into contracts for services, supplies or works (e.g. building works), that specified procedures for the advertising, specifying and tendering of those contracts must be followed.

The purpose is to provide for an open and competitive approach to tendering that is fair, transparent and which does not discriminate between contractors and suppliers, including on grounds of nationality.

The existing procurement legislation is now supplemented by a further EU instigated set of regulations on remedies which the UK is required to implement before the end of 2009. The intention is to enhance the remedies for non compliance with the procurement legislation, including improved effectiveness of the review procedures after a public contract has been awarded.

Under these regulations, new obligations apply in regard to the mandatory standstill period that must be operated between the time that a decision is taken as to the outcome and notification of a tender and before the point at which the contract is actually concluded. Previously the way that the standstill period was operated varied between EU member states. A new EU wide harmonised approach now applies.

This ensures more detail and information has to be provided by public bodies as to the outcome of a tender. So in addition to providing information about the tender award criteria, the recipient’s tender score and that of the successful tenderer, notification also has to be given about the implications of the standstill period itself. Recipients must also be given reasons for the tender decision. So this should mean that recipients receive detailed reasons as to why their bid was not successful and the characteristics and relative advantages of the successful bid.

Where a public contract has already been entered into, the previous legislation and associated case law had developed a number of remedies that an aggrieved contractor or supplier could apply to the Court for, if it felt that the public procurement requirements had not been followed. Now, a new remedy is made available for significant breaches of the requirements under which a contract that has been awarded in breach of the procurement regulations can be made “ineffective”.

This remedy of “ineffectiveness” means that a court is able to set aside a contract that has already been entered into and make awards of compensation to those affected as a result. Other new remedies empower the Court to order that an existing contract be shortened or varied and in addition, financial penalties can be awarded against non compliant public bodies.

The remedy of “ineffectiveness” is perhaps the most serious risk that a public body could face given that it will have to re-run a tender process and bear the costs to itself arising from the disruption that will arise, as well as having to compensate others that have been affected, including the contractor or supplier who thought that it had correctly won the tender.

The new remedy will only apply in the case of a serious breach, including where the tender was undertaken without being properly advertised (i.e. no OJEU ad), or where a call off contract has been awarded in breach of the terms that apply under a framework agreement or dynamic purchasing system, or where the standstill period obligations have not been complied with and the contract has been entered into prematurely.

However, where the grounds for an ineffectiveness order apply, the Court has only limited discretion not to make a contract ineffective, such as where in exceptional cases it would not be in the public interest (e.g. a contract relevant to the timing of the 2012 Olympics). If such exceptions apply then the Court must impose a fine or shorten the duration of the contract, or both.

The new remedies regulations will be implemented prospectively from the point that the Court makes its order (rather than retrospectively from the point that a contract was completed).

An ineffectiveness claim can be made up to six months from commencement of the contract, although this time period is just 30 days where the claimant has received notification about the outcome of the tender.

For more information contact Colin Jones on 01223 461155