For a long time, the risks associated with a breach of public procurement legislation in the UK were considered limited – and with good reason, as it used to be the case that once a contract was concluded it could not normally be set aside, so the only remedy available to an aggrieved party was damages.
However, not only were damages generally seen as a less satisfactory remedy, but they also proved very difficult for an aggrieved party to obtain - a reflection of the difficulty in practice of demonstrating to the court that the procurement breach actually caused loss to the claimant.
There was another reason why the risks associated with a breach of procurement legislation seemed relatively limited: aggrieved parties had to act promptly and in any event within three months from the date when the alleged breach actually occurred. This rule meant that it was not always sufficient for claimants to bring an action within three months; they also had to demonstrate to the court that they had acted promptly. The courts did have the discretion to extend this period if they believed that there was good reason for them to do so; however, this meant that in circumstances where, through no fault of the claimant, the alleged breach had only become public knowledge following the expiry of the three-month period, the claimant was left with no other option but to depend on the court’s discretion not to bar the claim.
Now all this has changed. The implementation of the EU remedies directive 2007/66 into UK law on 20 December 2009 and the decision of the European Court of Justice in Uniplex (UK) Ltd v NHS Business Services Authority (Case C-406/08) of 28 January 2010 have transformed the public procurement law landscape in the UK.
The new remedies regime has enhanced the rights of bidders, including by, in certain circumstances, requiring that the courts declare an illegally awarded contract ‘ineffective’ – which essentially means setting aside any outstanding contractual obligations. In addition, the Uniplex judgment has led to the existing limitation period requirements being reinterpreted in a way that is more favourable to potential claimants.
The ineffectiveness remedy
Under the new remedy rules now in place, a court has the power to declare a contract ‘ineffective’ where:
The implications of ineffectiveness
The consequences of a concluded contract being declared ‘ineffective’ are the cancellation of any outstanding contractual obligations (from the time of such declaration) and payment of a fine. The legislation does not specify what the fine should be, but indicates that it must be “effective, proportionate and dissuasive”.
In certain exceptional circumstances the court has the power not to declare a contract ineffective if overriding reasons of general interest so require. However, in such an event, the court is required to impose alternative penalties, namely the shortening of the duration of the contract and/or the payment of a fine.
Limitation period for seeking a declaration of ineffectiveness
It is also worth noting that in circumstances where there is an illegal direct award, the time period within which a contract may be challenged for ineffectiveness is six months from the illegal award – as compared with three months, which is the standard challenge period for other breaches.
However, the new remedies rules also provide for the possibility of reducing this six-month limitation period to 30 days in certain circumstances, including when the awarding body voluntarily publishes a contract award notice in the Official Journal of the European Union (OJEU) to publicise the fact that it has awarded a contract without a prior advertisement, and provided that the contract award notice includes a justification of the decision to award the contract without such prior advertisement.
In addition, the ineffectiveness remedy is not available where the awarding body publishes a so-called ‘voluntary transparency notice’ in the OJEU advertising its intention to award a contract without competition and allowing a minimum of 10 days to expire following the publication of that notice (and provided certain other requirements are met).
Another innovation of the new remedies regime which is also to the benefit of parties minded to challenge the legality of the tender process is that, where a party commences proceedings in the court for breach of procurement rules, the tender process will now be automatically suspended until such time as the court decides the matter or, on the application of the awarding body, the court orders the removal of the automatic suspension.
This amounts to a reversal of roles since, under the old rules, there was no automatic suspension of the tender process – an aggrieved party looking to stop the process had to go to the court and seek interim measures suspending the contract award until such time as the court could consider the substance of that party’s claim.
Complementing the introduction of these new remedy provisions into UK law was the publication of the European Court’s decision in Uniplex only a few weeks later. In this case – a referral by the English High Court to the European Court for a preliminary ruling – the European Court essentially declared that the provisions in the UK procurement regulations which require that legal proceedings for breach of the procurement regulations be brought ‘promptly and in any event within three months from the date when grounds for the bringing of the proceedings first arose’ are not in line with EU law. Instead, the period for bringing proceedings seeking to establish a breach of the procurement rules or to obtain damages for such a breach should start to run from the date on which the claimant knew or ought to have known of that infringement, disregarding the requirement in the legislation to act promptly.
This decision has important ramifications. It means that national courts are now required to give effect to this ruling by:
The UK government will in due course have to amend procurement regulations to bring them into line with the Uniplex judgment. In the meantime, the courts are obliged to interpret the existing rules in line with the European Court’s judgment. The practical effect of this decision is that in defending a claim, awarding bodies can no longer rely on the fact that the claimant has not acted promptly enough or that the alleged breach occurred more than three months previously.
Increased risks for bodies awarding contracts
There is no doubt that the new remedies regime has shifted the balance of power between aggrieved parties and awarding bodies in favour of the former. Chief among the reasons for this change is the introduction of the remedy of ineffectiveness.
That said, it is worth keeping in mind that this new draconian remedy is only available in three very specific circumstances, as described above. Accordingly, the point can be made that, while the repercussions regarding getting things wrong might have become more serious, it will be quite rare for an awarding body to unwittingly find itself in any one of the three situations that give rise to this remedy.
For instance, as discussed earlier, one of the grounds that may bring about ineffectiveness is when there has been a breach of the awarding body’s standstill period obligations (combined with a substantive breach of the procurement rules). A standstill period breach would include cases when an awarding body concludes the contract with the winning bidder before the expiry of the standstill period – which in most cases would be a minimum period of 10 days following the date on which the awarding body has notified bidders in writing of its award decision and the reasons for it. It would seem unlikely that an awarding body could do so without it being aware that the standstill period has yet to expire, and that by concluding the contract at that point in time it would be breaching its obligations under the procurement rules.
Seen from this broad perspective, it could be thought that the risks for awarding bodies may have increased, but remain predictable and manageable. However, there are genuine concerns about the possibility of a technical breach (in conjunction with a substantive breach) leading to a successful ineffectiveness challenge. For example, as indicated above, one of the requirements of the standstill period provisions is that the awarding body gives written notice to bidders of the reasons for its award decision. What if an aggrieved bidder were to argue that the standstill period letter which it received did not adequately describe the reasons for the awarding authority’s decision? In certain circumstances that may mean that the standstill period had not been initiated correctly and therefore the contract was concluded in breach of the standstill period obligations, so that, where there is also a substantive breach, the remedy of ineffectiveness might indeed be available.
What makes this area of the law particularly risky is that there is currently a lack of clarity as to the extent to which awarding bodies need to go in order to satisfy the legal requirement to give reasons for their award decisions. It is worth noting in this respect that while the EU legislation talks about providing bidders with a ‘summary of reasons’ for the award decision, the implementing legislation in the UK (other than in Scotland, which has its own legislation) talks about providing bidders with ‘the reasons’ for the decision, while guidelines issued by the UK government talk about provision of the ‘full reasons’ for the decision.
Such issues remain to be clarified in due course by the courts. Until then, awarding bodies would be well advised to take particular care. As mentioned, the UK government will also need to amend the procurement legislation once again in order to bring its provisions into line with the European Court’s judgment in Uniplex. One possibility is that this might involve reducing the three-month limitation period applicable to remedies other than ineffectiveness, to take into account the fact that the clock starts ticking from the time of knowledge (or imputed knowledge) of the breach rather than from the time of the breach itself.
Although these further legislative changes and clarifications are still outstanding, what is already undoubtedly clear is that the rules of the game have now changed, significantly raising the stakes for awarding bodies. For an entirely different set of reasons, caveat emptor never seemed more appropriate in the context of UK public procurement: buyer beware not so much about what you buy, but about how you go about buying.