Like some mythical beast which rises from the depths of the legislative tide flowing from the European Union and the European Court of Justice, procurement law now reaches into areas which previously would have been the stuff of nightmares. The latest tentacle to be wrapped around well-intentioned contracting authorities carries the greatest threat to date in the hitherto civilised world of public procurement.

New regulations made on 11 November 2009 which came into force on 20 December provide new remedies for aggrieved bidders to pursue via the courts should they decide a public body has not followed the procurement rules correctly. The new remedy, which has caused most consternation, is the potential for contracts which have been awarded to be set aside or rendered ‘ineffective’ in the jargon of the regulations.

At first glance this is a potentially significant departure from what was available in the past. Previously, the only remedy for alleged unfairness once a contract had been entered into was an application for damages by way of compensation, all of which would be at the challengers’ risk to prove. Not a pastime for the faint-hearted.

Major complex projects already have significant issues to grapple with around defining the way evaluation criteria and weightings will apply during and throughout the procurement process. Public bodies must already ensure they properly scope and define requirements from the outset and do not change them during the procurement process – where such processes stretch over two years, as can be the case in major complex projects, this may not always be an easy task. Changes in law, for example, may need to be factored into a procurement process part way through if these have not been anticipated at the start. New legislation on carbon reduction targets might be a case in point.

Award criteria should be fair and objective and focus on the content of the bid – not the financial standing or experience of the bidder, which should be settled at an earlier (PQQ) stage. Recent case law demands that evaluation criteria and methodology be disclosed to bidders; all fundamental matters, including price, need to be settled under competition. In more complex procurements, either through competitive dialogue or negotiated procedure, substantive discussions can take place, but not with a single bidder.

The competitive dialogue process used in the UK for procuring major complex projects has also added complexity. Competitive dialogue requires all substantive issues to be determined during the dialogue phase and there is very little room for change once dialogue has closed. This means the procuring authority is probably spending more money up front to ensure it can meet bidders requirements and keep bidders interested during the dialogue phase. It also means bidders are spending more money on advisers and other fees, while still in competition without the comfort of knowing they are the lead or preferred bidder.

It is true to say competitive dialogue has had a mixed reception from the market, with some contracting authorities blazing a trail and delivering projects in record time, while others have had delays and problems caused, in part it must be said, as a result of the credit crunch and associated funding crisis rather than competitive dialogue per se.

The economic downturn has impacted in other ways, for example, making bidders more selective as to which schemes to bid for and taking a view as to which authorities will deliver a project swiftly and efficiently.

On top of all this come new remedies which potentially allow disaffected bidders to mount legal challenges to prevent the ‘winning’ bidder (who is likely to be a close competitor) from taking advantage of the spoils, after it has successfully negotiated these hurdles.

For schemes already in procurement there is some good news. Regulation 11 of the new amendment regulations provides that, where a contract award procedure has commenced before 20 December 2009, they will not be affected by these changes. ‘Contract award procedure’ is widely defined and includes where the authority has published any form of advertisement seeking offers or expressions of interest in a proposed public contract, framework agreement or dynamic purchasing system.

However, schemes to be advertised after this date will be concerned about these new potential remedies and the risk of legal challenge.

So what can be done to mitigate these risks?

Most concern expressed is about so called ‘ineffectiveness’, whereby the courts may set aside contracts which have been entered into up to six months after contract signature.

One thing is certain: to avoid challenge, contracting authorities need to understand and comply with the rules themselves. One of these rules requires a notice to be served on all participating bidders prior to contract award. This is the so called stand-still period where bidders who have not been selected have an opportunity (or last chance) to raise complaints about the way the process has been run or about the way the evaluation criteria has been applied prior to the ‘winning’ bidder being selected. Under the new regime, the alcatel notice – what it contains, who it is served on and when it is served – becomes very important.

Where alcatel requirements have been adequately complied with and there have been no material changes to the contracting authority's requirements during the procurement, this should be enough to avoid the risk of ineffectiveness. Where the alcatel requirements have not been correctly complied with, a court will only declare the contract ineffective if, additionally, the claimant's chances of winning the contract have been affected by the breach.

If there have been substantial changes to the contracting authority's requirements so that arguably it should have abandoned the procurement and re-advertised, the alcatel notice offers insufficient comfort against potential ineffectiveness. However, the risk can be reduced by publishing a contract award notice after the contract is signed. This shortens the time limit for claims for ineffectiveness to 30 days after publication of the contract award notice (reduced from the default position of six months after contract signature).

The new regulations also state that if there are good reasons for maintaining the contract, the courts will not declare the contract ineffective. Good reasons are:

Overriding reasons in the general interest;

  • Economic reasons in the effectiveness of the contract allowed but only if exceptional circumstances and ineffectiveness would lead to disproportionate consequences.

The sting in the tail here is that, if overriding reasons in the public interest apply such that the contract is not declared ineffective, the court must shorten the contract and/or fine the authority. Moreover, economic interests directly linked to contract do not constitute grounds for maintaining the contract. For example costs arising from delay to the procurement process or of having to pay wasted bid costs are unlikely to persuade a court to maintain a contract under the above criteria.

Other remedies are available for technical breaches of the regulations and the hope is that set aside/ineffectiveness will only be used in serious cases of non-compliance.

In the worst case scenario, a declaration of ineffectiveness will expose the public body to disruption, the costs of a fresh procurement, and possible compensation to the contractor it had wrongly entered into contract with and a civil penalty (fine). Additionally, aggrieved bidders could be awarded damages.

Contracting authorities need to put strategies in place to deal with the new threats to ensure they do not get thwarted by the above remedies just as they are about to embark upon what they thought was a long contract term with the bidder they selected.

In summary, Local Partnerships’ key messages are:

  • The alcatel notice, what it contains (note the new expanded requirements), how and when it is served must be in accordance with regulations – don’t leave room for complaint later;
  • If no complaint is received during the alcatel period – get the contract signed as soon as the alcatel period expires – 10-15 days dependent on whether the alcatel notice was sent by email/email or not;
  • Publish the contract award notice soon as possible. This becomes a really important step towards limiting the period of risk of set aside as opposed to a purely administrative step which it was regarded before;
  • While contracting authorities will have a further 30 days from the contract award notice to worry about set-aside applications, the chances of success appear remote particularly if concerns have not been raised within alcatel period (unless of course there has been something wrong with the alcatel notice itself).

Rob Hann is director of legal services at Local Partnerships

  • Local Partnerships is a joint venture between the Local Government Association and Partnerships UK, incorporating 4ps. Local Partnerships’ mission is to enhance the quality of people’s lives by giving trusted, professional support to local public bodies to improve their ability to source and deliver high quality, cost-effective public services and infrastructure.

For more information, visit the Local Partnerships website or contact Rob Hann at rob.hann@localpartnerships.org.uk