How do things look in the Covid era? Michael Bowsher QC and Ben Rayment consider the thorny issues around emergency procurements.
We start with a blog on a topic of considerable contemporary relevance inspired by the article in The Guardian which appeared in the dead tree edition as “£1bn in state contracts given to companies without public tender”.
The Guardian article has already provoked trenchant blog comment from our colleagues Albert Sanchez-Graells and Pedro Telles which you will find in recent entries on their respective sites: https://www.howtocrackanut.com/ and http://www.telles.eu/. In this post we look at some of the key issues through the lens of recent case law experience and highlight how the law as it was a few weeks ago already looks a little strange today. We then make a couple of brief remarks as to how procurement law seems to be falling short of what it should be achieving. These are topics we have all had to discuss in detail in ongoing situations over the last few weeks and no one would be surprised if the legitimacy of emergency procedures had been the subject of vigorous contentious correspondence concerning the matters under discussion. We have all had the opportunity to develop our thinking about these issues in recent weeks.
In the spirit of providing more background references, some of these issues had also been discussed during the series of recent webinars we ran in Monckton Chambers (see slides at https://www.monckton.com/news/?cat=seminar-slides-podcasts) and are also covered in some recent updates from Freshfields Bruckhaus Deringer, see https://riskandcompliance.freshfields.com/u/102fo30/elizabeth-forster.
As procurement practitioners know, the ‘urgency’ provisions of the PCR 2015 and Directive 2014/24 (Reg 32 and Art 32, respectively) permit by way of exception the use of the negotiated procedure without a notice when for reasons of “extreme urgency”, and only when it is “strictly necessary”, the time limits specified for open, restricted or negotiated procedures with a notice are used cannot be met. The provisions may be relied upon only if the event giving rise to urgency is “unforeseeable” by the contracting authority and is not “attributable” to that authority. Furthermore choice of this procedure must be justified by the contracting authority in a report. As with all derogations it must according to the caselaw be construed narrowly.
Unsurprisingly the existing caselaw does not contain an example of an emergency on the scale of the present pandemic. Of greater note however is how little guidance the existing caselaw provides for the application of the urgency provisions in the face of a major emergency involving a significant threat to health and in particular the approach to the notion of the public authorities being in some sense responsible, or to blame, for the urgency. The existing caselaw at the EU level (largely involving infraction proceedings rather than actions by private parties) has generally not addressed procurement in situations of real emergency and real urgency in combination. The explanatory Guidance from the European Commission on using the public procurement framework in the emergency situation related to the COVID-19 crisis is fine as far as it goes but it does not really amount to significantly more than confirmation that an emergency of the current historic proportions may give rise to situations in which the urgency provisions may be relied upon: see https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020XC0401%2805%29.
Of more interest to the issues discussed in this blog is the domestic UK case Salt International v Scottish Ministers  CSIH 85, determined at the appellate level by the Inner House of the Court of Session under the 2006 PCRs. That case concerned procurements of gritting salt for Scottish roads over a period of two winters in 2009/10 and 20111/12, which had been directly awarded in the mistaken belief that the PCRs did not apply. In a claim for damages brought by the claimant, Salt International, the contracting authority sought after the event inter alia to rely on the urgency provisions in its defence. It was successful in establishing an urgent need for which it bore no responsibility in relation to the procurement exercise it carried out in relation to the first winter, a situation which threatened not only the road network but the health and safety of the public. That issue was hotly contested and the claimant relied on the fact that previous winters had been harsh, a report from July 2009 in England that recommended a salt reserve and recommended broadening sources of supply and the fact that a commercial company had also warned about insufficient salt supplies. Insufficiency of de-icing stock was obviously attributable to the responsible authorities. The Court rejected the argument that the urgency was attributable to the contracting authority in the first winter but found in favour of the claimant on that issue in the second winter. Victory on this point did not win the war for Salt International as the Court found that it would not have been successful if a lawful process had been followed and also noted the great difficulty it would have had in identifying what damages it had suffered but for the breach of the PCRs.
Comparisons and contrasts of all kinds may in due course be sought to be drawn by procurement practitioners between cases such as Salt International and particular procurement situations that have arisen in the current COVID crisis. Are contracting authorities currently experiencing a justifiable “first winter” in terms of urgency and, if so, would they necessarily fare so well under the urgency provisions if the much talked about risk of a “second spike” in COVID infections were to materialise? The need to attribute responsibility for the urgency could draw the courts into wide ranging investigations of preparedness, and previous reports and warnings in the context of assessing foreseeability. However, even if the contracting authority is in some sense responsible for the urgency, that does not mean that the procurement of relevant works (Nightingale Hospitals?), supplies (PPE?) or services (testing?) were not essential to procure as a matter of the utmost urgency. And in that context the response of procurement law to situations of genuine urgency arguably requires further consideration.
A few themes immediately occur in the current situation.
First, the law on procuring emergency contracts does not seem to hang together very well in a real emergency. That is a disappointment given that was its purpose. In reality, if the emergency is real and the need for the contract is real and necessarily caused by the emergency it is hard to see any judge wanting to decide that kit or sustenance or whatever should not be made available as soon as possible. There would often be practical difficulties in getting injunctive relief quickly enough anyway, and compensation for someone who would have wanted the contract if only they’d known will often be hard to quantify as Salt International shows. This leaves a declaration of ineffectiveness and given the general interest grounds for not making a declaration in Regulation 100 of the PCR 2015 (and similar provisions in the other regulations) the judge has plenty of wriggle room; and what is the point of the civil financial penalty paid from one government account to another? If this is right, the real question probably comes back to whether this is a real emergency with real consequences for the public. In a world in which the EU Commission is not going to bring infraction proceedings against the UK, what do the questions about the contracting authority’s prior responsibility for the situation really add?
The core question is really, then, is this contract really necessitated by this emergency or is the emergency being used as cover?
The second point leading on from this is that if the law is a tiger with rather few teeth, what does this say about procurement law? For many years procurement law has tended to focus on internal market, value and now sustainability issues. As Coulson L.J. reminded those of us who were at the White Paper procurement conference in London last November, the core reason for procurement law is not, however, to integrate a market but to prevent or remedy abuses of the contracting process. Sir Peter mentioned then the Poulson affair, but of course many circumstances could have stood as examples. It has sometimes been assumed over recent years that we did not need procurement law (and of course many have said that for different reasons in recent years). There is a lot of material supporting the view that public procurement is particularly at risk from fraud and corruption at times such as this. By chance a substantial piece of work making just this point was published by the International Public Sector Fraud Forum just as the crisis started. It drew on recent experience such as the Australian bush fire crisis, see https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/864310/Fraud_in_Emergency_Management_and_Recovery_10Feb.pdf It is full of delightful procurement horror stories. The same point is made explicitly in the Q&A session with Professor Yukins and Assistant Dean Tillipman https://www.law.gwu.edu/confronting-fraud-and-corruption-amid-pandemic:
“Anytime a government has to procure goods and services very quickly to respond to an emergency, the procurement system becomes even more vulnerable to fraud and corruption. This is only exacerbated by the huge sums of money that government spend to respond to crises.”
A procurement system based around market integration and trade concerns, and enforced mostly by dissatisfied competitors is not one that well suited to facing up to these issues on a systematic basis. The Public Accounts Committee of the House of Commons, supported by the National Audit Office have been doing increasingly important work in looking at the performance and tendering of public contracts but their work is not comprehensive and there must be concerns that they will simply be overwhelmed after this crisis. Will these entities have the resources to look at what went right or wrong in letting emergency contracts when so much else will need to be looked at, and who will do the same job for local government and other such bodies? None of this is made any easier if there is a failure to comply with key aspects of the obligation of transparency, and specifically the obligation to publish information regarding the award of a contract as explicitly identified in Procurement Policy Note 1/20.
“You should ensure you keep proper records of decisions and actions on individual contracts, as this could mitigate against the risk of a successful legal challenge. If you make a direct award, you should publish a contract award notice (regulation 50) within 30 days of awarding the contract.”
In the past government has sometimes sought to suggest that formal audit functions might not always be necessary if reliance could be placed on "arm chair auditors" to pursue these matters, but it is hard to see how this function can work without material to audity.
Third, there is a problem with applying the various strict models from the EU procurement procedures to the current situation. The various specified procedures all seem to be written from the perspective of a buyer's market in which the contracting authority decides what it wants, tells the market and receives offers. Of course, there are models that contemplate a little more indecision and in-process learning by the purchaser. Innovation Partnership contemplates an even more flexible model. In the most urgent of situations, though, there may be a limit to how far this is a useful model. The authority may discover it has a need that has to be fulfilled by an imminent date, or as soon as possible. It may be unable or unwilling to specify the path to the outcome. Those who have watched the BBC drama “Castles in the Sky” will have a seen a dramatisation of a process leading to the production of radar that certainly would not fulfil the straightjacket of any EU process. Sometimes government will have to invite suggestions for urgent but vaguely expressed requirements, even though it will necessarily be investing in some bidders whose qualities (or lack of them) are unknown or whose offering is at best speculative. Of course law must somehow find a way of distinguishing the process that reveals the diamond in the rough, and the other that involves paying money to a known rogue for no good reason or for a very bad reason.
Further posts will give us the opportunity to puzzle out some answers to these problems.
This article first appeared on Michael's Mostly Procurement blog. Ben is known to many as a frequent contributor of case notes in the Public Procurement Law Review.