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Government Contracts 2016: Trends

Government procurement continues to grow in prominence and the issues and legislation surrounding it are becoming a more topical concern. Governments are at pains to secure value for money for the taxpayer and reduce their infrastructure deficit; as a result, the market for securing contracts has been increasingly competitive over the past five years. Disputes arising from these contracts, including challenges to the bid process, have grown in part due to this competitive pressure. Over the past few years, ongoing changes to legislation and reviews into procurement processes have ensured that legal teams have been kept busy in two of the biggest procurement markets in the world, namely Europe and the US.

The most widely talked about topic in our interviews is the ongoing implementation of the EU procurement directives. In 2014, three EU directives addressing different aspects of procurement law were drawn up in the Official Journal of the European Union (OJEU) and came into effect on 18 April 2016, giving member states a two-year window to transpose it unilaterally into existing national legislation. Alongside the implications to central government legislation, individual sectors and entities have been encouraged to adapt their internal procedures to ensure compliance with the new rules. Unsurprisingly this has kept procurement lawyers extremely busy, and law firms have been investing resources into raising awareness and addressing concerns among public bodies and the private sector in relation to the new frameworks.

In the words of the European Commission, “The new rules have changed the way EU countries and public authorities spend a large part of the €1.9 trillion paid for public procurement every year in Europe.” The directives promote the EU’s principles of transparency, fair play and competition; some of its most prominent changes are frameworks for e-procurement and innovative partnerships. It also promotes access to procurement among SMEs, sets new rules on concessions and tightens the rules for the modification of contracts after a bid is awarded. Despite the rules’ attempts to clarify the regime around procurement, questions have arisen and answers remain unclear. For the most part these issues will only be clarified in the courts and in the meantime lawyers advise that it is up to contracting authorities to interpret these rules and apply them with due caution. In the near future, interviewees expect challenges off the back of these rules as more contracts are awarded under the new frameworks. This will add to an already large market for pre-litigation and litigation counselling, which has been growing since the economic downturn as suppliers fight more aggressively for contracts, as well as being able to find a greater basis to challenge through transparent procurement processes and through a clearer understanding of bidder’s rights.

The US has also seen an elevated rise in bid protests in an effort to gain government contracts and lawyers in Washington, DC attest to an active area of practice. They say that contractors have a greater incentive to file a bid protest due to tightening federal spending and a strong effectiveness rate, which averages 42 per cent. Reforming government contracting was a key target of the Obama administration, which looked to reduce the $500 billion being spent in 2008. The administration emphasised taxpayer value and pushed for greater accountability and competition in federal contracts, including steps to reduce wasteful spending, overcharges and fraud. The measures were effective at reducing the annual 12 per cent increase the federal government spent on contracting between 2001 and 2008. The side-effect has been a significant rise in the number of bid protests filed before the Government Accountability Office (GAO); notably, between 2008 and 2014 when government spending decreased by 25 per cent, total bid protests increased by 45 per cent.

This has led to congressional scrutiny over the impact of such GAO protests on the processes of government agencies, which in turn has led to calls for an independent review of the bid protest procedure for major defence contracts. Further movement in the area is expected as a result of plans to amend the GAO’s protest regulations, including provisions for an electronic filing system, and changes to timeliness, protective orders and reimbursements. Ultimately, in the last five years the market has changed considerably and government contract lawyers have been central to ensuring compliance with the reforms and assisting in the considerable increase in bid protests. Going forward, commentators point to the uncertainty in the market over the next administration and how it will tackle the politicised issue of government contracts.

On both sides of the Atlantic there has been an emphasis on cost-efficiency and modernisation in how contracts are awarded. Legislative reform has been the key instrument in ensuring that the trillion dollar market is kept in check. For both private sector contractors and public bodies this has meant grappling with reform and ensuring that expenditure is scrutinised. Now more than ever, leading practitioners in the field stress that contracts need to be properly drafted, bidding strategies well prepared, and tender processes suitably compliant and transparent in an effort to avoid expensive and time-consuming procurement disputes. 

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W11 1QQ, UK