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Improved rights of remedy for breach of public procurement rules

A new European Directive has been agreed to provide more effective remedies for breach of the EU Public Procurement rules. Member States have until December 2009 to implement the Directive.

Broadly speaking the public procurement regime applies when public authorities; those majority funded or majority controlled by the public sector; and some utility companies purchase works, goods or services. The rules are based on a system which requires prior advertisement of the contract, usually in the Official Journal of the EU, and contract tendering and contract award in accordance with detailed rules which seek to ensure equal treatment of tenderers, so that public sector contracts are opened up to tendering across the European Union and beyond.

The new Directive has been introduced to resolve concerns that the existing remedies for breach of the Procurement regime are not fully effective. In many jurisdictions, including the UK, an injunction can be obtained to stop the award of a contract in breach of the rules but once the contract has been made the remedy is limited to the possibility of suing for damages. Even that is not easy as the action is usually for the loss of a chance of being awarded a contract, with damages being calculated as a percentage (the lost chance) of the profit which might have been earned had the plaintiff been awarded a contract. The result has been that few cases have been brought in the UK, or the rest of the EU, for breach of the rules and often actions have been too late to deal with the problem of a contract being awarded in breach of the rules. More usually litigation on the regime has been brought as an action by the European Commission against the Member State concerned. The intended impact of the new Directive is to encourage private litigation, which is in accordance with the broader aims of the European Commission and other authorities, such as the OFT, to encourage private enforcement of competition law.

In order to deal with some of the problems faced by those who seek to stop a contract being awarded, the 2006 UK procurement implementing rules introduced both a 10 day standstill period between notification of the identity of the successful bidder and contract award, and an accelerated debrief procedure. The concept of a standstill period comes from European Court of Justice case law relating to telecommunications in Austria, known as the Alcatel cases. They decided that disappointed bidders must have a reasonable period in time in which to exercise a right to prevent a contract being awarded in breach of the rules, and also must have access to the information necessary to give effect to that right. The accelerated debrief procedure introduced in the UK in the 2006 regulations was intended to assist a disappointed person to get from the public authority or utility the information necessary to obtain an injunction to stop a contract being awarded in breach of the rules. The procedure permits disappointed candidates (persons interested in the contract at an early stage) and tenderers (those who bid for the contract) to obtain information on why they were unsuccessful and why someone else was successful. An accelerated debrief must be requested in writing by no later than midnight of the 2nd day of the standstill period.

The new Directive gives rights to those who have or have had an interest in a particular contract and who risk being harmed as a result of an alleged infringement of the rules. The Directive requires the implementation of a standstill period of at least 10 days, where the intention to award a contract is notified to the disappointed bidders by email or fax, and at least 15 days in other cases. Certain information must be provided - including the period for seeking a review of the procurement process. Implementation of the Directive will require the UK rules to be amended.

The new Directive for the first time requires Member States to give their courts the power to strike down a contract which has been awarded in serious breach of the rules. This will cover cases where the regime was not followed at all, as well as those where the regime was followed in a faulty manner, including in particular where the standstill period was not respected. It will be left for the Member States to decide when invalidity takes effect - from the date of the contract or from the date of the decision to declare the contract invalid. This decision could be very important in cases where work starts immediately after the contract is made. After a declaration of invalidity the public sector can use the negotiated procedure without advertisement (ie they just approach 1 or more undertakings and negotiate with them) and the Directive expressly acknowledges it may only be possible at that point “for compelling reasons” to do so with the person unlawfully awarded the contract - which may prove to be a method of avoiding the consequences of a declaration of invalidity, at least until the European Court explains how that is to be interpreted. The Directive also includes a concept of overriding general interest when deciding upon a request for a declaration of invalidity of a contract, so that it may be the public interest could override the request. However the interest cannot simply relate to the costs involved in stopping a contract from the proceeding once it has been awarded.

The Directive also for the first time introduces the concept that those who enter into a contract unlawfully or breach the Public Procurement rules may be subject to fines, in addition to an award of damages in favour of a successful plaintiff. As an alternative to a fine the Member States can shorten the duration of the contract.

It is open to the Member States to introduce stricter rules if they chose. Given the well known penchant of the UK authorities for gold plating it is to be hoped that this is not another case where the UK rules end up tougher than those applying in the rest of the European Union.

key expertise

Geraldine Tickle
Partner
geraldine.tickle@martjohn.com

James Dilley
Partner
james.dilley@martjohn.com

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