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Brace yourself - here comes a new age of procurement-related courtroom drama
17 December 2009
We all like a bit of drama. People tune into high-profile trials
and see how individuals react when made to squirm by a rough-cut US
judge, or a high-profile cross-examiner in a libel case, or counsel
for the prosecution in the trial of some once-powerful government
minister on corruption charges. There’s nothing like a good dose of
Schadenfreude.
That, of course, is the world of people who live in the public
eye. There’s no way a local council, hospital trust, or university
could land in the dock and have to defend itself in such
embarrassing circumstances where procurement faux-pas are
concerned. Or is there?
Well, actually, yes. The reason? New legislation which boosts
the rights of disgruntled suppliers to take public bodies to task
over irregular procurement procedures, and to get resulting
contracts annulled where the most serious types of violations in
the fairness of procurements has come to light.
If you’re reading this as someone who conducts purchases and
procures services for a public body, the chances are you’ll have
realised that we are, of course, referring to the ‘Remedies
Directive’ – an unnerving piece of legislation, courtesy of
Brussels, which will formally become part of our own law on 20
December 2009.
What’s unnerving about it?
In a radical departure from the way the law stands at present,
the main feature of the new legislation is the introduction of a
new power for the courts to make declarations of ‘ineffectiveness’
– in other words, to annul contracts with successful suppliers even
after they have been signed – but this is only possible when the
most serious violations of the procurement rules are established.
These are basically the following:
- Failure to advertise the contract when required by EU law to do
so (thus preventing the supplier market in Europe from hearing
about it)
- Failure to adopt the mandatory ‘standstill’ period after
choosing the preferred bidder but before awarding the contract
- Signing the contract even after a supplier has gone to court to
challenge the procurement process as defective
- Award of a ‘call-off’ contract (an individual contract placed
under a framework agreement) in breach of the requirement for
mini-competitions
Until now, damages (which are usually difficult to quantify)
have been the only recourse available after contract signature to
suppliers who have missed out on the relevant opportunities.
What levels of discretion do the courts
have?
The courts must make an ineffectiveness declaration when these
types of violations have been found (as well as imposing a ‘civil
financial penalty’ – in other words a fine – which must be
“effective, proportionate and dissuasive”). However, an aggrieved
supplier does not have the option of seeking an ineffectiveness
declaration in cases of any alleged violation except the four above
and an ineffectiveness declaration must not be made if the ‘general
interest’ dictates that the contract should be kept alive. What’s
more, there are some further conditions which have to apply if the
supplier challenges the process under the second and third of the
four grounds. In those situations, the supplier can only pursue the
ineffectiveness course if the violation has affected its chances of
obtaining the contract and has deprived the supplier of the
possibility of redress prior to the contract being awarded. In the
case of those same grounds, the court must order the contract to be
shortened and/or a fine to be paid by the authority which has
committed the violation.
However, where an ineffectiveness declaration is made
(accompanied, of course, by the fine), the court can do more: it
can make additional orders designed to facilitate the physical
unravelling of the contract. This is all in the context of the fact
that a contract’s ineffectiveness can only be ‘prospective’ and
never retrospective. In simple terms, obligations already performed
don’t need to be un-performed. But, for example, in the case of a
building project on which work has started, it could still be a
case of finding another contractor to take over the work following
a fresh (and compliant) re-procurement.
Dissatisfied suppliers have always needed to ‘jump to
it’ if intending to challenge. Is this the case when seeking an
ineffectiveness declaration?
Yes, although there are subtle changes to the so-called
‘limitation periods’ that suppliers will need to be aware of.
Actual limitation periods will vary depending on the level of
notification that the authority decided to give in relation to the
contract that had been awarded. Where the authority says nothing, a
supplier has six months in which to apply for an ineffectiveness
declaration. Otherwise, it’s 30 days from publication of the
contract award notice, or the same period following the date
candidates are informed that the contract has been awarded.
What about the old remedies (suppliers going to court
and just wanting the process re-started so that they’re in with a
chance)? Can they still do that?
Those remedies are all still available. As long as suppliers
warn authorities that they intend to go to court, and as long as
proceedings are then brought promptly (and in any event within
three months of the grounds for challenge emerging), the courts
will still be able to grant injunctions causing errant decisions to
be reversed and processes re-run.
And framework agreements? I can imagine one almighty
mess if multiple orders have already been placed under a framework
which was awarded after a defective procurement. Am I
right?
Not exactly. The way ineffectiveness will affect frameworks is
actually surprisingly straightforward. Basically, call-off
contracts placed under a framework agreement won’t necessarily be
affected if the framework agreement itself is declared ineffective.
If a court decided to annul a call-off contract as well as the
framework agreement itself, it would have to make a separate
ineffectiveness declaration in respect of the call-off; and in any
event the supplier would have to have made a separate
ineffectiveness claim, specific to the call-off, within the (tight)
timescales which apply more generally. In essence, the two are
treated independently.
Additionally, the requirement for a fine does not apply where a
call-off is declared ineffective. In the same way as described
above, the ‘general interest’ can dictate against the call-off
being declared ineffective, but if so, the courts must generally
order the call-off to be shortened in duration.
I’m just about to start a major procurement. Should I
make sure I send my OJEU notice for publication before 20 December
2009?
The new rules described above will only apply to procurements
where the OJEU notice has been sent out for publication on or after
Sunday 20 December 2009. Authorities wanting to avoid the new rules
applying whilst it’s possible to do so might want to make sure that
any OJEU notice goes out for publication by Friday 18 December –
but do note, the OJEU software may well groan under the weight of
advertisement traffic on the 18th itself.
And finally?
For some authorities, the damage that they are most anxious to
avoid is reputational: the thought that, having been tarred with a
claim for ineffectiveness, the feathers of adverse publicity will
follow.
For Primary Care Trust boards the consequences can be wide
ranging in light of the mandatory (World Class Commissioning)
organisational competencies requiring them to be satisfied that
they have secured the necessary procurement skills and
(appropriately) stimulated the market. A large fine and/or
successful procurement challenge would lead to external scrutiny
and/or interventions both of which would impact on the board’s
corporate governance role, if not its membership.
We are keen to help you eliminate the risk of any supplier
having grounds to challenge any of your procurements in court – and
to help ensure that you never have occasion to leave any supplier,
or the public, with a sense of Schadenfreude.
talk to us
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of aspects of the subject matter and does not provide comprehensive
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