Challenges to exclusion
Jenny Beresford-Jones considers the current position for challenging an exclusion prior to assessment of tenders at the SQ/Participation Stage, and how it will change when the Procurement Act reforms come into effect.
If you have seen our most recent 5 in 25 webinar on Challenges, you’ll know that one of things we are thinking carefully about here in the procurement team is the effect of the Procurement Act 2023 on the likelihood of challenges being raised earlier on in the procurement process.
In this article we explore the position currently as well as look forward to how this might change after 28 October 2024 when the new procurement law regime goes live.
Current Position
Typically, challenges are brought after the winning tenderer has been identified, during or following the standstill period.
Challenges usually (although not always) arise around the conduct of the evaluation – that the authority for one reason or another has not assessed the claimant’s tender in accordance with the general principles of transparency and equal treatment, or that the tender documentation was insufficiently clear, leading to the claimant’s tender being marked down.
Where the claimant’s score is very close to that of the winning tenderer, there is obviously a reasonable possibility that a court might agree with the claimant, incentivising the claimant to challenge.
This is particularly true of complex evaluations where even most diligent authority will need to work very hard indeed to conduct an evaluation which is 100% free of manifest error.
Developments under the Procurement Act 2023?
Under the Procurement Act 2023 (PA 2023) we think there may now be more challenges at an earlier stage, particularly around exclusion; before the evaluation of any tender.
This is because, under the PA 2023, the consequences of exclusion for a supplier go much wider than simply an exclusion from this procurement.
An exclusion decision by an authority leads, by section 59(2), to a referral of the supplier within 30 days to the Debarment Review Service (a constituent part of the new Procurement Review Unit).
This Service can then decide to investigate and - ultimately – it could decide to place that supplier on the debarment list. This then potentially debars that supplier from competing in any public procurement process for the term of their debarment.
Given this, we think that suppliers will be likely to try to challenge exclusion decisions if they consider there to be any merit in doing so.
A challenge will presumably argue that the authority has acted in breach of its duties in failing to accept the suppliers “representations” (aka “self-cleaning”) under section 58(2). Perhaps a claimant will contend that the authority’s requirements around self-cleaning are not “proportionate” – as required by section 58(3)?
Where the exclusion is for poor performance, a supplier may contest the fact that the “poor performance” is entirely its fault, for example, and want to bring a claim to argue a case that the authority’s “failures” have contributed to the poor performance of that contract.
Setting Conditions of Participation
The other area which may develop differently under the PA 2023 is the contracting authority’s approach to the setting of “conditions of participation” (i.e. “selection criteria” as we now call them).
Currently, the questions asked at selection stage are controlled reasonably rigidly thanks to the mandatory CCS SQ (more on this later). The PA 2023 seems to offer more flexibility around setting Conditions of Participation – including whether to use them at all, and in terms of what conditions are set.
The overarching requirements are those at section 22(1) – any conditions of participation set must be a “proportionate” means of assessing legal and financial capacity and technical ability.
While there will of course be no flexibility around including the mandatory and discretionary exclusion grounds that could lead a supplier being an excluded/excludable supplier, on the other hand, it does seem that the PA 2023 is more “hands off” in its approach to allowing authorities to set conditions of participation.
One possibility is that this increased flex will bring with it an increased risk of authorities setting conditions of participation which do not comply with the requirements in section 22(1) – another potential source of procurement challenge.
Recent case on damages for unlawful exclusion
Although these types of challenges may increase under the PA 2023, they can and do happen already under the current regime.
A recent case looked at the tricky question of how a court should approach a claim for unlawful exclusion and how it should award damages, given that the claimant may well have not yet submitted a tender at all.
The purpose of a payment of damages to a successful claimant is to put it in the position it would have been in if the breach had not happened. But, where the claim is based around an unlawful exclusion at selection stage, how does the claimant show that it would have won, or would have had a chance of winning, the contract, when its tender was likely not submitted at all, (or under an open process, where its tender was not assessed)?
Case C‑547/22 is a European case and so is no longer binding on the courts in this jurisdiction. However, it seems likely that UK courts will use European case law as an aid to interpretation.
In this case, a Contracting Authority in Slovakia ran a procurement to establish a framework to build, repair and maintain 16 football stadia. The claimant was excluded based on its economic and financial standing before having the opportunity to submit a tender. Only one supplier was appointed to the framework (meaning that only this supplier could be awarded any work).
At a later point, the exclusion of the claimant was ruled unlawful, and its exclusion was “cancelled”. It then brought an action arguing that it was entitled to damages, because the unlawful exclusion had led it to lose a framework place. In other words, the only reason the successful supplier was getting the work was because its competitor, the claimant, had been unlawfully excluded.
This gave rise to a tricky question. Slovak law provides that compensation can be paid for two things (1) actual (substantiated) loss and (2) loss of profit that would have been made on the contract, where an authority (presumably a court) has ruled that a decision in the procurement was unlawful. It does not provide for compensation for mere loss of an opportunity.
However, in this case, the claimant had not even got so far as to have its tender evaluated; therefore, there was no way of knowing whether it would have been awarded a place on the framework. Did this mean that there could be no “loss of profit”? The claimant in the case argued that, under Slovak law, the “loss of profit” was inherent in the loss of an opportunity to go on to have its tender assessed and to be awarded place on the framework.
The Slovak Courts referred the question of whether Slovak law on this point was compatible with the EU Remedies Directive providing remedies for public procurement breaches.
The European Court gave a preliminary ruling that Slovak law must be interpreted as permitting a tenderer (who has been unlawfully excluded) to be compensated for the damage suffered due to the loss of the opportunity to participate in that procedure with a view to being awarded the contract.
Although this case is not binding in this jurisdiction, it is certainly helpful to any claimant who is weighing up the pros and cons of whether to challenge an exclusion prior to assessment of tenders; the European Court clearly considers that this kind of loss does merit compensation in damages.
Jenny Beresford-Jones is a Senior Legal Advisor at Mills & Reeve. This article first appeared on the firm’s Procurement Portal.
