Local Government Lawyer

Buyer Beware

Tuesday, 02 February 2010

Public procurement is increasingly becoming a minefield for purchasers, writes Local Partnerships' Rob Hann. The situation is likely to become more perilous still with the introduction of the Public Contracts (Amendment) Regulations 2009.

The previously pedestrian world of public procurement has suddenly become a very dangerous, angst-ridden place to be. Over the past few decades great strides have been made to forge partnerships between the public and private sector through various means including long term contracts such as under PFI or via joint venture companies, like LIFT companies and local education partnerships (LEPs). 2009 has seen many significant changes to the public procurement environment which have impacted on the ability of procuring authorities to deliver projects efficiently.

The recession, credit crunch and lending crisis at the beginning of the year was a major factor leading to many large deals stalling within sight of the finishing post, until financial rescue packages were put together and the markets settled down to something like ‘business as usual’ again. The funding crisis, for many schemes, came at the tail end of the relatively new competitive dialogue (‘CD’) process which had been supposedly tailor made for complex projects by the EU. Unfortunately, there is very little scope permitted within the legislation to allow public authorities to react to market forces part way through a procurement exercise, much less after dialogue has closed.

Meanwhile, the European Court of Justice (ECJ) continues to make new law - or perhaps more precisely – the ECJ continues to clarify existing law, in the process, sweeping away long held beliefs about such things as the proper scope of competition obligations under the EU Treaty for below threshold or so called ‘Part B’ (exempt) services and venturing into previously uncharted territory of land redevelopment and planning agreements via the Auroux case. Yet more case law laid down rules and requirements for how bidders and their solutions should be evaluated and assessed by procuring authorities. A long line of ECJ cases have now clarified such ‘helpful’ issues as what questions can be asked at the earlier ‘selection’ (or pre-qualification’ ) stage of procurement and which questions can or should be left until later when actual bids or tenders are assessed and bidder proposals are considered for carrying out the proposed contracting opportunity.

Among the nuggets are such seemingly inflexible rules about only asking questions of a bidders’ track record, financial standing and experience at the selection PQQ stage. Or not changing evaluation criteria once they have been set. About telling bidders precisely what weightings are allocated to particular criteria and sub-criteria so they know and understand what parts of the bid they should give greater or lesser attention to. Like answering an exam paper as one judge put it.

Whilst it is all very well to have clarification on such issues, sometimes difficulties arise in practice when attempting to stick to those rules in different circumstances to the ones in which the learned judges were dealing with when they are applied across the procurement spectrum.

To take one example, the above ‘rules’ came out of a series of cases in Ireland whereby a framework arrangement was being put in place to facilitate the speedy building of schools. A framework procurement is fundamentally different in nature and time-frame to a bespoke procurement of services under a competitive dialogue process. Is it really only appropriate for questions about track record or financial stability only to be investigated at the pre-selection stage? Is it sensible to enshrine evaluation criteria in stone at the front end of a procurement exercise and not revisit such criteria to take account of (say) changes in law or changes in the market (such as the credit crunch and financial crises) so as to better reflect the reality of the time? The argument against doing so is that this could be seen as discriminatory and to favour one bidder’s solution over another's or to tailor the evaluation criteria to the best option coming back. These are of course legitimate concerns but so is the inability to ‘flex’ the criteria to meet current and changing market circumstances.

To add to the already heady mix, in the Spring came news that the OFT had fined over 100 construction companies for participating in so called ‘bid rigging’ or cover pricing. This caused outrage amongst many in the public sector and re-ignited ancient prejudices about private sector ripping off the public sector. The scandal implicated many of the current contracting market but public bodies have been warned against taking punitive action against convicted contractors as regards future procurement opportunities on the basis the companies concerned will be punished twice for the same offence and that in any event the companies named were apparently but the tip of a very large iceberg. Whilst the appeals against the OFTs findings and penalties rumble on, procuring authorities will be left wondering what they can do to guard against such abuses in future.

At the same time, contracting authorities which are looking for quick and efficient means of purchasing works, supplies or services to meet ever more challenging efficiency targets now find themselves entangled in a bewildering maze of legislation, regulation and case law which, on a worst case scenario, could mean they find themselves enmeshed in expensive litigation.

The new snappily titled Public Contracts (Amendment) Regulations 2009 (“the Regulations”) add a dimension to that time honoured maxim “Buyer Beware.” From 20th December 2009, these Regulations introduce a new range of potential remedies for aggrieved contractors (and others) to pursue and create in the process, a new set of problems for public procuring organisations to worry about. Until recently, once a contract was signed it could not be overturned for a breach of the EU procurement rules. This will no longer be the case when new law comes into force.

There are three main areas where this law is likely to cause problems contracting authorities:

Where a contract is not advertised via OJEU but should have been. This is a particular concern for development agreements following the Roanne case. Roanne said that development agreements with a total value over the EU tendering threshold need to be tendered via OJEU where the contracting authority has significant control over the development;
Where the contract award procedure has not been followed properly. The new Regulations specify what feedback has to be given to each tenderer. This includes detailed feedback on why they were unsuccessful. There must then be a standstill period of at least 10 days (or longer if this feedback is not given by email or fax) before the contract is signed;
Where the requirements for running mini-competitions under a framework agreement not followed correctly. This applies to contracts valued over the EU tendering threshold which are awarded through a mini-competition. The contract can be set aside where there are problems with feedback and the contracting authority does not use a standstill period. Contracting authorities need to ensure they follow these new procedures when running a mini-competition to call off works or services from a buying club.

In each of these cases the contract can be set aside for “ineffectiveness”. A contractor that wants to challenge a contract has 6 months from signature of the contract to do so. Where a contract award notice is sent to OJEU, the period is reduced to 30 days from the date the notice is sent. The reduction to 30 days can also apply where the contracting authority gives full feedback to tenderers in accordance with the Regulations.

The procedure to challenge a contract involves the contractor applying to court. Once the court application is served on the contracting authority, the contract cannot be signed until the court either allows the contracting authority to do so or decides the case.

In the worst case scenario, a declaration of ineffectiveness will expose the public body to disruption, the costs of a fresh procurement, and possible compensation to the contractor it had wrongly entered into contract with and a civil penalty (fine). Additionally, aggrieved bidders could be awarded damages.

Will all these various developments make public procurement more efficient or effective? Whilst transparency and fairness is a legitimate and fundamental objective of the EU Procurement, the question must be asked whether the pendulum has swung too far. The main beneficiary of these changes will be those who have not gone the distance and who have not been selected for the contracting opportunity. Arguably they will also be the organisation with most to lose if their nearest rivals are appointed to perform a valuable contract. The potential for mischief going forward is greatly increased and efficiencies dreamed of at the start of such processes may look a distant dream and indeed turn into a nightmare at the end.

Rob Hann is director of legal services at Local Partnerships.

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