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Public Procurement - the importance of getting it right
9 February 2009
Considering the impact of two recent cases in which the courts
decided they could (and did) set aside framework agreements that
had already been entered into.
Following a trend over the past 10 years, public authorities are
procuring an increasing amount of construction services and
products under framework agreements. There is good reason for this
as it allows authorities to develop strategic relationships with
their supply chain, promoting consistency of approach, better value
and sustained ongoing improvement. A practical advantage is that
the authority is able to award contracts under framework agreements
without the need to re-advertise and re-apply the selection and
award criteria, saving the time and cost of repeat bidding.
The Public Contracts Regulations 2006 (‘the Regulations’)
regulate public procurement in England, Wales and Northern Ireland.
Regulation 2 defines a framework agreement as an agreement between
one or more contracting authorities and one or more economic
operators, which establishes the terms (in particular in relation
to price and, as appropriate; quantity) under which the economic
operator will enter into one or more contracts with the contracting
authority in the period during which the framework agreement
applies. Specific purchases can be made throughout the term of the
framework agreement: the ‘call-off’ contracts. This is distinct
from a contract which sets out the framework for, and commits the
contracting authority to, the regular award or purchase of works,
goods or services.
Under Regulation 47, a contracting authority owes a duty to an
economic operator to award contracts based on objective criteria,
ensuring compliance with the principles of transparency, non
discrimination and equal treatment in conditions of effective
competition. A breach of that duty is actionable by an economic
operator which suffers, or risks suffering, loss or damage
(Regulation 47(6)). Under Regulation 47(9), the court does not have
power to order any remedy other than an award of damages in respect
of a breach of a duty, if the contract in relation to which the
breach occurred has been entered into.
The traditional view was that authorities who breached
procurement law and had their awards challenged, risked facing a
claim for damages by an aggrieved tenderer (such damages being
based on that challenger having lost the chance of successfully
tendering, had the rules been followed, and later making a profit,
plus its abortive tender costs) or, if the framework agreement had
not already been signed, the risk that the court would grant
an injunction preventing the award going ahead.
Two recent Irish cases have redefined that position:
The first case is that of Mclaughin and Harvey Limited v The
Department of Finance and Personnel (No. 3) [October 2008] in
which a company unsuccessfully tendered for a framework agreement
relating to a number of construction projects at an estimated cost
of £500m - £800m over a four year period. The second case,
Henry Bros (Magherafelt) Limited and others v Department of
Education of Northern Ireland 153 [December 2008] involved a
claim brought by a consortium of building contractors who
unsuccessfully tendered for a framework agreement to be delivered
over a two year period, with an estimated value of £550m - £600m,
to be put through the framework agreement.
In both cases, the courts took the view that the relevant
authority had breached the Regulations. The issue was therefore,
what was the appropriate remedy to award? In deciding, the courts
took the view that each framework agreement in question was not a
‘contract’ for the purposes of Regulation 47(9) because it was a
call off framework agreement, with no commitment to purchase.
Therefore, the court was not restricted to award only damages, but
it could (and did) set aside the framework agreement that the
relevant authority had already entered into with the successful
tenderers. In the latter case, the court did so despite the fact
that specific call-off contracts had been issued under the
framework agreement. The effect being that only those call–off
contracts that had already been awarded under the framework
agreement could not be set aside. This was because the restriction
on the remedies available to the courts set out in Regulation 47(9)
still applied to the call-off contracts issued under the framework
agreement (these being self contained and complete contracts and
therefore covered by Regulation 47(9)), if not the framework
agreement itself. Damages were the only remedy available in
relation to the award of the call-off contracts.
In the Mclaughlin case, as an alternative remedy, the aggrieved
tenderer asked the court to order the Department to add them to the
framework list; on this occasion the court declined as it would
unfairly dilute the work for the other appointed parties. The court
was influenced by the difficulty of otherwise assessing damages and
the public interest of having the best contractors on the framework
agreement. The court concluded that if the framework agreement had
been allowed to continue, the consequence would be the continuation
of a framework agreement based upon a manifest error, generating
specific contracts awarded in breach of the principles of EU
competition law and, at least potentially, breaches of Articles 87
and 88 of the EC Treaty. Further, any damages claim would be
impossible to quantify until all of the call-off contracts had been
awarded.
In essence, these cases highlight the importance for authorities
of adhering to (and being able to demonstrate that they have
adhered to) public procurement legislation and building in as much
transparency into the tendering process as is feasible, in order to
minimise the risk of challenges to any procurement procedure. The
practical options available to an authority who fails to comply
with the procurement procedure and is challenged as a result, is to
either re-tender the works by re-running the entire procurement
process, (ensuring that this time, they meet the criteria set down
by the Regulations) or to resort to traditional tendering methods
to deliver the project. Either way, and aside from the potential
damage to public relations, there is a significant time and cost
implication for the authorities, not just dealing with claims for
damages from disgruntled tenderers (be those unsuccessful tenderers
or tenderers who have been selected, but then have framework
agreements set aside), but also from the cost of going through the
tendering process again. Depending on the particular circumstances,
it may therefore be more pragmatic for an authority facing a
challenge to allow the disgruntled tenderer onto the framework
list, rather than run the risk of having the entire framework
agreement set aside.
Finally, whilst this summarises the position at present, it is
worth noting that it may be changed by Directive 2007/66 (due to be
implemented into national law by 20 December 2009). This will bring
framework agreements within the Regulations. It will be interesting
to see if the Office of Government Commerce takes the opportunity
to clarify the issues raised in these two cases in relation to how
framework agreements are to be treated, when they draft the
implementing Regulations, or whether they leave such clarification
to the courts.
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