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PUBLIC PROCUREMENT - REMEDIES FOR UNSUCCESSFUL TENDERERS

AN ARTICLE by Peter Scrafton FIRRV, FCIArb, MRSA(Hon) Solicitor (Non-Practising)

September 2010.

eaders of “Valuer” will, no doubt, be awaiting, eagerly, the second part of my review of the decision of the European Court in the case of Muller, which qualifies the Court’s earlier decision in Auroux.  This piece is for, perhaps, a wider readership, as it deals with disputes in connection with public procurement, both procedural and substantive.

The spur for this piece is the Public Contracts (Amendment) Regulations 2009 (SI 2009/2992) which were introduced to update the Public Procurement Regulations 2006 (SI 2006/5).  The amending regulations give effect, in English law, to European Directive 2007/66, which itself amends Directives 1989/665 and 1992/13.

 

There seem to have been three reasons for this new Directive and for the consequential change in domestic law.  First, there was the decision of the European Court in Alcotel (Case C-81/98 [1999] ECR I-7671) requiring a standstill period between an award decision and the contract signature, so as to avoid a “race to signature?.  Second, there was a perceived inadequacy as to the requirements for information to be made available to unsuccessful bidders.  Third, there was a perceived lack of effective remedies for the unsuccessful, beyond an award of compensatory damages for breach of the public procurement rules.

 

Prior to the coming into force of the amended regulations, the only remedies available to the aggrieved tenderer were an interim injunction, seeking to halt the signing of the contract, or seeking a new tender; or alternatively seeking damages.  The revised Directive, as applied by the amending regulations, makes a number of significant changes.  In essence, these are designed to promote transparency and to give an aggrieved bidder a reasonable chance of making a complaint – provided that such bidder acts very promptly.  I will examine these changes in turn, by reference also to some of the recent cases.

 

First, the contracting authority must give to all participating tenderers a notice (called an “award decision notice”) which shall contain the award criteria, the successful tenderer’s name and when the standstill period is expected to end.  Further, any tenderer which made an offer at the end of the procurement period must be told the reason for the eventual decision and why their bid was not preferred, as well as the relative scores obtained by their (unsuccessful) bid and the successful bidder.

 

The sending of the award decision notice begins the standstill period, during which the authority is suspended from signing the contract.  The Directive stipulates a period of 10-15 days: the UK regulations provide for a period of 10 days.    It is not clear whether, should an authority press on regardless and conclude the contract, they would be acting lawfully.  If they do proceed, then the better view may be that they are not acting unlawfully, but they could be subject to sanctions if they do, even in the face of a claim which is without merit.  Authorities should therefore think extremely carefully before signing up within the standstill period.

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If a challenge comes in, and the authority feels that it is without merit, then it is open to that authority (see Reg.47H of the 2009 regulations) to bring an action seeking the removal of the suspension.  Thus a challenge by an aggrieved tenderer has the same kind of effect as an interim injunction.  The Court will have to: ”….. consider whether….. it would be appropriate to make an interim order”; which suggests that the approach to be taken by an authority will be the same as that taken when seeking the lifting of an interim injunction.

 

Other challenges (save for those seeking the new remedy of a Declaration of Ineffectiveness) must be made: “….. promptly and in any event within three months beginning with the date when the grounds for starting the proceedings arose (Reg.42D(2))

 

The European Court gave judgment, in January, in the case of Uniplex (C-406/08) in which the dispute centred around whether the time limit for bringing proceedings for breach of the procurement rules started to run from the date on which the tenderer knew, or ought to have known that the procurement procedure and contract breached Community public law, or the date when such a breach took place.  The Court held that the effectiveness of the remedy could not be guaranteed unless the limitation period for an action for a declaration of breach did not start to run until the date when the claimant in the proceedings knew, or ought to have known, that the breach had occurred. 

 

The Court went on to hold that the requirement to launch proceedings within three months and which gives the national Court discretion to dismiss an application, even where the three-month limit has not expired, is inconsistent with Community law as it is uncertain and can prevent claimants from knowing the exact time limit applicable to their case.

 

The High Court has applied Uniplex for, it seems, the first time, in Sita UK Ltd v Greater Manchester Waste Disposal Authority [2010] EWHC 680 (Ch) striking out proceedings seeking damages for breach of the public procurement regime.  The Court decided that SITA had been too late in starting proceedings, refusing to exercise its discretion to extend the procurement limitation period, holding that such extensions should not be lightly given having regard to the purpose of the time limits in the first place. The purpose of a short limitation period had been imposed in the interests of good public administration so that authorities know as soon as possible whether one of their procurements is being challenged having regard to the significant disruption which the mere existence of such a claim can cause to public finances.

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The decision considers in detail the limitation period following Uniplex and focuses on the issue of Sita's "knowledge" of the alleged procurement breach, as evidenced by the pre-litigation correspondence between the parties. Sita issued proceedings in late August 2009; but the Court held that they knew or were in a position to know that there was a prima facie infringement on or shortly after 8th April 2009. The time limit expired on or shortly after 7th July 2009, and the fact that they had had to consult internal boards did not help them.

 

The implications of these two cases for authorities would seem to be that, for authorities, it is not going to be possible to argue that challenges were not brought sufficiently swiftly after the date of any actual breach.  However, the more transparent their procurement procedures and decisions, the earlier they will be able to argue that time started to run.

 

Intending claimants will need to bear very much in mind what it said in pre-litigation correspondence and whether time spent in seeking detailed disclosure might not, as far as commencement of proceedings is concerned, be counter-productive.  They should note, though, when considering the scope of disclosure to be sought, the case of Croft House Care Ltd-v-Durham CC [2010] EWHC 909 (TCC) which establishes that the fact that documents may contain confidential information is not of itself a valid reason for not disclosing them.

 

The Council sought to withhold two classes of document, namely those which contained commercially sensitive material provided by tenderers concerning the method statement and statement of technical capacity, and documents which would prejudice the Council’s ability to re-run the procurement, if necessary. The Court declared that the ultimate test was whether disclosure and inspection was necessary for disposing fairly of the proceedings.  Balancing the rights of third parties to confidentiality as against the need for the documents to be provided for a fair trial in a case in which the documents sought went to the heart of the Claimant’s pleaded case, the Court had no hesitation in ordering disclosure.  Although the Council had shown that disclosure would cause it some difficulty in re-running the competition, the Court held that such difficulties were surmountable, and applying the same balancing test, ordered disclosure. The new remedy, introduced by Regs 47J-K, is that of a Declaration of Ineffectiveness against a concluded public contract.  Such an application must be made within six months, and the time limit is not extendable even being capable of being shortened to 30 days (Reg,47E(5)K(3) or(4).

Applications may allege an illegal direct award, breach of certain requirements in relation to contracts under a dynamic purchasing system or framework agreement, or disregard of the implications of the “standstill” period or a challenge to the award decision, itself.  Except in the case (and here comes the tongue-twister) of the last two grounds, if ineffectiveness is established the Court must make a declaration unless it is satisfied that “general interest grounds” apply.

 

Subject to the rider mentioned above, if ineffectiveness is proved, then the Court must make a declaration.  In the case of disregard of “standstill” or challenge to award, however, the Court is obliged to decide whether there has been a breach and then, if so satisfied, the effect that such breach had on the challenger’s chance of securing the contract.

 

Authorities should beware, though, that if they escape a declaration on general interest grounds, they will be subject to other sanctions, such as contract shortening and/or a civil penalty (Reg.47N(2)(a),(3)).  Such sanctions could also affect the successful tenderer and there could be other cost implications for the authority there, also.  Otherwise, if a declaration is made, there will follow an analysis leading to an order for restitution as between the parties to the proceedings as to their prospective losses – although the Court generally cannot interfere with a prior agreement between parties as to the consequences of a declaration being made (Reg.47M(6))

 

The case of Wall AG (Case C-91/08) is worthy of mention, here. Wall sought damages arising from what they said was a substantial change of contract (they were dropped as a subcontractor in a service concession contract) which breach required that a new award procedure was necessary. The Court held that, although services concession contracts do not fall under the procurement rules they are nonetheless subject to the general Treaty principles of equal treatment and non-discrimination and the obligation of transparency. Therefore, replacement of a specified subcontractor may require a new award procedure to restore transparency if the national court determines this constitutes a change to one of the essential terms of the contract What about the existing remedies?  There have been developments there, too.

 

There would seem to be continuing scope for injunctive relief, not least of all in respect of challenges to below-threshold contracts with cross-border effects, challenges to the early stages of the bid process or breaches of general principles of Community law, such as transparency and legitimate expectation. 

 

The law on interim injunctions will continue to apply.  See National Commercial Bank Jamaica Ltd v. Olint Corp. Ltd [2009] 1 WLR 1405, at paras 16-20. “In practice, however, it is often hard to tell whether either damages or the cross-undertaking will be an adequate remedy and the court has to engage in trying to predict whether granting or withholding an injunction is more or less likely to cause irremediable prejudice (and to what extent) if it turns out that the injunction should not have been granted or withheld, as the case may be. The basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other”. [Para 17]

 

Aggrieved bidders will still need to demonstrate, however, that the balance of convenience shows that an injunction should be granted and that other remedies (usually damages) will not be adequate.  See Apcoa Parking (UK) Ltd v. Westminster CC [2010] EWHC 943 (QB)  

 

In that context, Azam & Co v Legal Services Commission [2010] EWHC 960 should be borne in mind. The  regulations do not require a contracting authority expressly to inform existing providers of the deadline for submissions when the contract or framework agreement is re-tendered. Furthermore, the principle of proportionality does not automatically require a contracting authority to grant an extension to a tenderer that fails to submit a tender on time.  

 

This brings us to judicial review.

 

Remember that judicial review is a public law remedy of last resort, and that it is not available if any other remedy is available.

 

The regulations deal with “economic operators” and so the remedies available there ought to be sufficient.

 

Where a local authority’s contracting decision is subject to a special statutory regime, such as the Local Government Act 1988, Part II, judicial review is available (see First Real Estates (UK) Ltd-v-Birmingham CC [2009] EWHC 817 (Admin))

 

The position in relation to other areas was not really free from doubt until the decision by the Court of Appeal in R (Chandler)-v-Camden LBC [2009] EWCA Civ 1011 where it was held that failure to comply with the regulations gives rise not only to a private law claim, but:-

 

“…The failure to comply with the regulations is an unlawful act, whether or not there is [an] economic operator who wishes to bring proceedings under reg 47, and thus a paradigm situation in which a public body should be subject to review by the court. We incline to the view that an individual who has a sufficient interest in compliance with the public procurement regime in the sense that he is affected in some identifiable way, but is not himself an economic operator who could pursue remedies under reg 47, can bring judicial review proceedings to prevent non-compliance with the regulations or the obligations derived from the Treaty, especially before any infringement takes place….” [para 77]

 

So, apart from the economic operators, judicial review is open to all.

 

For cases below the threshold, there is a very helpful Scots case which declares that an aggrieved tenderer has only one remedy, namely judicial review as the remedies provided for by the regulations for “over-threshold” cases will not be available.  This will be so, whether or not the authority has purported to conduct a procurement exercise as though the regulations applied (Sidey Ltd -v- Clackmannanshire Council and Pyramid Joinery & Construction Ltd [2010] CSIH 37)

 

As to whether or not the procurement regime applies at all, see R. (on the application of Chandler) v Secretary of State for Children, Schools and Families [2009] EWCA Civ 1011 where the Court of Appeal held that a mere expression of interest was not a public works contract as the proposal was not “on the market” for profit.  The Court also held that it could be possible for an individual who is affected in an identifiable way by a body’s non-compliance with the public procurement regime to have sufficient standing to bring a judicial review, even if they were not an “economic operator”.  However, they would have to demonstrate “sufficient interest”, and to show that performance of the appropriate procedure “….. might have led to a different outcome that would have a direct impact on him.”

 

So there you have it!  A lot of developments in a very important field at the junction of the public with the private sector.  The problems are not all resolved, by any means; but there is, perhaps, some clearing of the fog of bureaucracy!

 

©J.P. Scrafton, 2010

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