Significant changes to the procurement rules and remedies that will not only apply, unusually, to unsuccessful tenderers but also put at risk contracts successfully entered into came into effect in December 2009. The changes include remedies introduced by the EC Remedies Directive and the Public Contracts (Amendment) Regulations 2009 (SI 2009/2992), the UK implementing Regulations, which are effective from 20 December 2009. In addition, a judgment of the European Court, Case C-406/08 Uniplex (28 January 2010), makes a substantial change to the limitation period during which a challenge may be made.
The Remedies Directive
So far as the legislation itself is concerned, the changes introduced by the Remedies Directive have been made through amendments to the existing legislation, the Public Contracts Regulations 2006, principally reg. 32 (dealing with the standstill period and debriefing) and reg. 47, which has been replaced altogether. (The Utilities Contracts Regulations 2006 have also been amended to similar effect by the Utilities Contracts (Amendment) Regulations 2009 (SI 2009/3100).)
The implications of these amendments are highly complex and barely penetrable even to the experienced lawyer. What follows is a brief description of the main points, all of which are subject to a number of qualifications which could be relevant in any particular case.
First, the changes to the standstill period mean that unsuccessful tenderers must be informed of ‘the reasons for the decision, including the characteristics and relative advantages of the successful tender’ at the same time as they are informed of the fact that they are unsuccessful, or at least the ten-day standstill period will not begin until that information is supplied. Further, that period must be extended, if necessary, so that it ends on a weekday. The extent of the debrief information, which is now described more fully as ‘the reasons for the decision’ is a matter that is not clear, and, inevitably, will be case specific. However the European Court has indicated that only limited information, namely the relative scores, will generally be sufficient to inform the tenderer of the reasons why he has lost; provision of the evaluation report is regarded as good practice, but not essential.
Secondly, once proceedings are issued, the contracting authority may not enter into a contract, if it has not already done so, with the successful tenderer until the proceedings are formally resolved. This ‘suspension’ has the effect of automatically injuncting the contracting authority, and is an extremely powerful new tool in the hands of the tenderer. Will the claimant be liable to the equivalent of the cross-undertaking in damages if its action is ultimately unsuccessful? What are the implications if the claimant seeks only damages? This extra ‘remedy’ is not only a potentially useful tool, but one that could add to the costs and risks of litigation, certainly if only damages are sought.
Of great interest to successful tenderers, who, under the previous legislation had little to be concerned about once a contract was entered into, is the new remedy of ‘ineffectiveness’. Where this is ordered, an existing contract must be set aside. The remedy is available only in limited circumstances, principally where a contract has not been advertised at all, or entered into during the standstill period or after proceedings have been issued. Generally, the remedy can be sought for up to six months after the date of the concluded contract, though the period is shorter (either 10 or 30 days) where information concerning the contract and the reason why the contracting authority believes no advertisement is necessary is published in the OJEU. Where an OJEU process has been engaged in, and the standstill and suspensory effect of proceedings has been observed, ‘ineffectiveness’ will not be an available remedy however serious the breach (special provisions relate to frameworks agreements).
Where ‘ineffectiveness’ is indicated, the court has some discretion to make an alternative order, although the discretion is limited. The costs or delay to the contracting authority cannot be grounds for the exercise of discretion, there has to be an external ‘general interest’, presumably some public interest, such as a risk to health. The circumstances in which the ‘general interest’ might provide grounds for permitting the contract to continue (leaving the claimant a remedy in damages) are further circumscribed by the court’s discretion to allow a shortening of the contract. This might provide for a reasonably orderly winding up of the contract in many cases, but it is not so practicable if there have been high start-up costs, or construction of a works contract is in progress.
‘Ineffectiveness’ may be prospective only. However, in a contract that involves the migration from an outgoing supplier’s system to a new one, there may be high initial running-in costs, provision of new hardware, the decommissioning of the previous IT system, and an annual payment in advance, such that the distinction between the apparently simple concepts of ‘retrospective’ and ‘prospective’ may be rather difficult to apply in practice.
Thus one area of great uncertainty for both the successful tenderer and the contracting authority is the financial consequences of the ineffectiveness or shortening of a contract. The court has discretion to provide ‘compensation’ on terms it thinks fit, but it must respect any agreement previously made by the parties as to the consequences. The ‘pre-nuptial’ agreement, if entered into, may add substantially to the delay and costs in entering into a contract, and the uncertainty as to the outcome of litigation, potentially making settlement harder. The court must also fine the contracting authority in certain circumstances, thus completing a whole raft of new powers which must or may be exercised by the court. As a result the successful tenderer may find it has a new role as intervener in any litigation – trying to persuade the court to resolve a breach in the way it, rather than the contracting authority, prefers.
Will this new regime improve enforcement as the Commission hopes? The UK has already been singled out by the Commission as an exceptionally high-cost Member State so far as the costs of litigation are concerned. In a recent issue, the estimate for pursuing proceedings in the UK for a Danish supplier were given as in the order of £50,000, whereas in Denmark the costs would apparently have been in the order of £2,000. The UK government has, not surprisingly, failed to introduce any alternative dispute resolution procedure to enable more claims against public bodies to be brought, though the OGC web site is full of encouragement to SMEs to tender effectively. At the very least legal advice will now be more difficult or expensive to obtain, and the prospects of litigation will be daunting even for the more substantial enterprises. On the other hand the new ‘suspensory’ effect of proceedings may encourage more litigation and increase the incentive on the contracting authority to settle, if the award has been suspended.
The Limitation Period: Uniplex
If the government has indeed chosen not to make access to enforcement more readily available, the European Court has frustrated that intention in a judgment that hugely simplifies the present law. According to reg. 47, proceedings have to be brought ‘promptly and in any event within three months’ of when grounds first arise, unless the court extends the time. The European Court found this too uncertain and held that proceedings may not be time-barred if brought within the period specified. The Court also held that the period must run, not from ‘grounds’, but from knowledge, either actual knowledge or from when the claimant ‘ought to have known’ the relevant facts.
This has a number of implications. First, it has generally been held that a claimant may not ‘sit on his hands’ and wait until he knows whether he has lost before challenging; if the breach is already clear (eg the ITT questionnaire is inconsistent with the criteria set out), such delay is not ‘prompt’. This has been a major problem since no tenderer wishes to issue proceedings during the process itself. As a result, challenges have generally been restricted to the assessment process, after the tenderer has been informed of the result, and the alleged breach is recent. That should now change and enable earlier breaches to be the subject of proceedings – in other words a tenderer may now ‘sit on his hands’ until after the award, as long as not more than three months has passed from knowledge of the earlier breach. At least this is the likely implication of the Uniplex judgment.
Secondly, the issue of ‘knowledge’ could extend the time for bringing proceedings way beyond three months. For example, FOIA requests may take months to resolve and reveal breaches such as changes to the specifications or the allocation of risk. Ironically, the Information Commissioner has held that the longer the delay, the less likely the commercial information is to be regarded as confidential and subject to redaction. In a further case, Veolia v Nottinghamshire County Council (under appeal), brought under the Audit Commission Act rather than the FOIA, the court held that, where a payment had to be made by a public body subject to the Act, the entire contract to which it related had to be made publicly available, without any redaction of sensitive information, since no such redaction was expressly provided for in the Act. If the judgment is upheld by the Court of Appeal, that will require the disclosure of even more detail than is currently available under the FOIA.
Uniplex will hugely extend the scope of claims that may be made, and will also give the parties a more reasonable time in which to consider the merits of their claim, including within the context of pre-litigation dialogue with the contracting authority. It will almost certainly require that amendment is made to the Regulations. It is possible that a shorter but more certain time period running from ‘knowledge’ will be introduced – the European Court had no difficulty with a 60-day period in Case C-327/00 Santex. However, the current provision mirrors the limitation period in judicial review proceedings with which it was clearly regarded as ‘comparable’. The government will find it difficult to amend the Regulations without considering the rather wider question of its implications for judicial review, particularly in cases which raise questions of European law.
Variations to Existing Contracts: Pressetext and Subsequent Developments
Finally, the implications of Case C-454/06 Pressetext have been of great concern to the IT community, and further implications are now emerging. That case established that variations to contracts into could amount to a ‘new’ contract and require advertisement. Many IT contracts require additional services to be added during their term in line with additional needs or technical or product development. Tender documents must allow adequately for these changes, so that no supplier can claim that, had they known about the developments at the tender stage, they might have submitted a different tender and won. That is not the only test, and the tests set out in Pressetext may well be qualified in a case currently before the European Court, Case C-91/08 Wall, in which the Advocate General’s Opinion suggests that the change in the identity of a sub-contractor may be unlawful, even though the contract documents expressly provided for such a variation, because the identity of the sub-contractor was a factor in the selection of the winning tender. With the change in the limitation period running from ‘knowledge’ and the increasing transparency of contractual agreements, the risk of challenge in respect of variations can only be increasing substantially.
Conclusion
So what new challenges face the supplier? First, the effect of the Remedies Directive is, on the one hand, the introduction of a potentially powerful tool for the challenger through the suspensory effect of bringing proceedings, replacing the need for an application for an injunction. On the other hand, it introduces new risks to the successful tenderer whose contract might be rendered ‘ineffective’, with uncertain financial implications. Secondly, Uniplex hugely increases the scope for bringing proceedings through a major ‘extension’ to the time in which proceedings may be brought. Thirdly, that extension combined with the increasing transparency of contracts entered into through the requirements of the FOIA, and the strict approach to the lawfulness of variations introduced by Pressetext, may mean that variations in contracts entered into during the term of a contract will no longer be tolerated by the procurement world, but will now be much more likely to be challenged.
Jenny Skilbeck is a barrister at Monckton Chambers whose major practice areas are European and UK competition law, with a particular interest in procurement law.
