Member Article

Born from the free movement provisions of the EU, and reflecting UK Government efficiency objectives, the procurement rules are aimed at ensuring equal treatment and opportunity when public authorities contract for works, goods and services by requiring, in broad terms, a publicised tender process.   However, disgruntled bidders have not had a happy hunting ground when seeking to challenge a suspected defective procurement exercise before the courts. On 20 December 2009 new rules are due to come into force, implementing the EU's so-called Remedies Directive, that are intended to improve and secure the effectiveness of the review procedure. The new rules offer both opportunities and challenges to parties involved in a procurement exercise.

The Current Position
The central problem that disgruntled bidders face under UK law is that once a contract has been entered into a court cannot order any remedy other than an award of damages. The European Court has stepped in to require EU contracting authorities to apply a standstill period of 10 days (reflected in the UK's procurement regulations) between the contract award decision and conclusion of the contract during which time losing bidders are able to obtain further information as to why they were unsuccessful. However, moving within a 10 day period to injunct a contracting authority from entering into a contract, coupled with the UK courts' historic unwillingness to grant such interim orders, has called into question the effectiveness of the review procedure.

The Directive
The Directive has two central components in addition to provisions re-affirming the need for a standstill period: an "ineffectiveness" remedy and suspension rules pending court proceedings.

The Ineffectiveness Remedy
The new remedy of contractual ineffectiveness applies only to serious breaches of the procurement rules, such as direct awards without prior publication. In such instances, subject to a public interest override and specified derogations, a member state must ensure that a contract is ruled ineffective. The UK has a choice between prospective cancellation of contracts awarded (that is to say releasing parties from future obligations) or a retroactive cancellation of all contractual obligations. The OGC, which has consulted on the implementation of the Directive, has opted for the prospective cancellation of such unlawfully awarded contracts.

The risk that a contract may be considered ineffective further down the line has evident practical consequences. Traditionally the winning bidder faced only a limited "compliance risk" given once the contract was awarded it would be the contracting authority which faced the risk of damages. Catering for the risk of ineffectiveness will now be a key feature of contractual terms.

Suspension
So as to allow courts sufficient time to act within the standstill period, the new rules provide that where a court challenge is made the contract cannot be entered into until the court has made a decision on the application. This provision is likely to incentivise the bringing (or the threat) of such actions and from a bidder's point of view offers evident benefits over weighing up the practical difficulties involved in obtaining an interim injunction.

Some Concluding Remarks
Court action is not the only remedy available to a disgruntled bidder. A complaint to the European Commission, for instance, has resulted in enforcement action being taken against a Member State, which at the very least lays down a marker to a contracting authority. Freedom of information requests may also have the same "indirect compliance" effect, leading to greater scrutiny of contracting authority decisions. However, court action remains the most effective remedy for a bidder looking for a re-think of an award. The Directive will undoubtedly provide bidders with greater opportunities for effective challenge and public authorities with greater compliance challenges.