With high profile procurement disputes recently hitting the headlines, the issue of the effectiveness of the current European Union procurement regime has become more prominent, not only in regards to the process itself but also in relation to the potential remedies that are available to a bidder who feels that there has been a breach of the procurement rules. The EU institutions are currently carrying out a review of the procurement regime. Two new procurement directives have been proposed which are intended to provide for greater flexibility and a simplification of the procurement procedures. Some of the proposals are also intended as codification of existing European case law with the addition of certain provisions, such as e-Procurement. It is anticipated that the final proposals will be adopted in 2013 and transposed by the national legislature of each Member State in 2014.

The EU Procurement Regime

The EU procurement regime is designed to ensure that there is EU-wide competition and equal opportunities for suppliers in any EU member state to bid for and win public contracts. In line with general EU principles, a procurement process should be transparent and involve fair competition.

Contracting authorities are not free to choose the selected bidder on the basis of any criteria that they may wish.

The EU procurement directives only apply when a public authority or a utility (referred to from this point onwards as the contracting authority) intends to award a contract. In addition, the contract must be above the relevant value threshold. In this regard it is worth noting that if a large contract is artificially divided into smaller lots, as a means of bringing it below the threshold, and the procurement rules are subsequently ignored, it will amount to a breach of the procurement rules, as the price of these contracts should be aggregated in order to value the contract accurately for the purposes of the procurement rules.

In general, it seems as though there has been an increase in the number of challenges to procurement processes and this, in turn, has led to an increased body of procurement case law which provides us with some guidance. Nevertheless, despite the fact that the origin of procurement regulations and legislation across Europe is the European Directives, there has been a wide inconsistency in the success rate of these challenges in different Member States. This will be discussed later in this article.

Procurement Processes

In the past the procurement process of choice has been the competitive negotiated procedure, in which the successful bidder is the "most economically advantageous tender." This does not necessarily translate as being the cheapest bidder. In order to establish the "most economically advantageous tender," the contracting authority will apply various criteria. This criteria must have been disclosed equally to all parties in advance. Along with the criteria, such as price, technical merit, delivery period and quality, the weighting that will be applied to each should, in almost all cases, also be disclosed.

Contracting authorities are not free to choose the selected bidder on the basis of any criteria that they may wish. For example, the European Court of Justice has ruled that criteria, such as relevant experience, should generally not be used to choose between tenders. European case law has also established that all the elements that the contracting authority plan to take into account when choosing the selected bidder, as well as the importance attached to each of these criteria, must also be disclosed.1

The practical effect of this is that a contracting authority runs the risk of receiving a challenge to its process if, in choosing its "most advantageous tender," it relies on factors and criteria that it did not disclose to all bidders at the outset. The use of non-objective, discriminatory criteria may also expose a contracting authority to the risk of a challenge.

At the end of this process the contracting authority must publish an award notice in the Official Journal in addition to giving written reasons for a rejection to any bidder who makes a request. Failure by a contracting authority to give adequate reasons on the rejection to a rejected bidder can also provoke a challenge to the contracting authority's procurement process.

In recent years, the Competitive Dialogue Procedure has been increasingly used for complex projects in the United Kingdom. This process involves a pre-qualifying stage at which the contracting authority is able to have discussions with bidders in order to identify the best way to meet the needs of the project, although the price of the funding for the project will not be disclosed. There may be numerous stages to this process and once a preferred bidder has been chosen, further clarification discussions may take place. However, once a preferred bidder has been chosen, no substantial changes which may have a discriminatory effect, or may affect competition, may be made to the contract.

Challenges to a Procurement Process

In essence, a challenge to a procurement process may be brought by an economic operator who suffers, or risks suffering, damage or loss as a consequence of a breach of the procurement rules by the contracting authority. Conceivably, this means that both unsuccessful tenderers, and potential tenderers (who would have liked the opportunity to bid for the contract, but who did not), may have an opportunity to challenge the procurement process.

The Remedies Directive 2007/66 was brought into force with the aim of improving the legal remedies and review procedures for procurement processes. Throughout the European member states, there have been differing methods of implementation of these obligations which are designed to ensure that effective remedies and means of enforcement are made available to bidders Europe-wide.

Indeed, the application of these remedies has differed somewhat throughout the EU and perhaps more interestingly, despite the fact that both the English and Northern Irish courts are applying the same Regulations, there has been a somewhat startling difference in the outcome of the application of this legislation, in particular regarding the lifting of the automatic suspensions. As soon as a pre-contract challenge has been made, there is an automatic suspension which comes into force preventing the contracting authority from entering into the contract in question until either the relevant proceedings are concluded or the court removes the suspension. Upon a challenge of an automatic suspension in the English courts, case law suggests that it is likely that the suspension will be lifted. On the other hand, in Northern Ireland, the courts appear more likely to maintain the suspension.

In particular, the Remedies Directives formalized the standstill procedure and introduced the concept of "ineffectiveness" as a remedy.

The standstill procedure requires a period of at least 10 days following the date upon which the summary of the reasons for the decision to award the contract was sent to the "tenderers concerned" to be a standstill period. The contracting authority may not enter into the contract with the selected bidder during this period. During this period, an unsuccessful bidder may apply for a review of a contracting authorities' decision and request and obtain information on why it has not been awarded the contract. In effect, there is a debrief condition. This is also commonly known as an "Alcatel" letter. If there is a breach by the contracting authority in this process, the contract may not be entered into pending the lifting of the automatic suspension that will be imposed (see above).

The concept of "ineffectiveness" provides that where there has been a breach of the procurement rules, a contract could be considered to be prospectively "ineffective" as from the date of the declaration. A contract may be declared ineffective where one of the following three grounds is met:

  • there is a failure to publish a contract notice in the Official Journal, if so required; or
  • there is an award of a contract without the appropriate application of the standstill provisions or suspension rules in addition to a breach of the procurement rules; or
  • where, in breach of the procurement rules, a contract is entered into under a framework agreement or dynamic purchasing system.

In recent years, the Competitive Dialogue Procedure has been increasingly used for complex projects in the United Kingdom.

When bringing a challenge to a procurement process, it is imperative to be aware of the time limit that is applicable to the potential challenge. Time limits in relation to procurement claims are strict, and outside of this time limit, the options for a challenge are restricted to a potential judicial review claim (further details below), the rescinding of a contract through "ineffectiveness" or a damages claim. The general rule is that proceedings must be brought within 30 days from when the claimant knew, or ought to have known, of the breach of the procurement rules. Challenges for ineffectiveness must be brought within 30 days of either the date of an award notice or receipt by the rejected bidder of the reasons of the refusal of their bid, or six months from the day after the contract was entered into by the contracting authority. Recent case law has also provided further guidance in relation to the degree of knowledge or constructive knowledge that the claimant must have before the time begins to run.2

It is worth keeping in mind that a material change to a contract can also provoke a challenge to the procurement process even after the contract has been awarded.3 This could particularly be an issue in these uncertain economic times where there may arise a need to amend a contract.

Judicial Review as a Means of Challenge

Judicial review is where the court reviews whether a decision or action taken by a public body in carrying out its public functions is lawful. It is not available as a means of challenge to a procurement process where the contracting authority has entered into a purely commercial arrangement. A party wishing to bring judicial review proceedings must also have "sufficient interest" in the matter. This has been interpreted widely by the courts and, as a general rule, if it can be shown by the claimant that lawful compliance by the contracting authority might have led to a different outcome that would have had a direct impact on him, the court will allow this as sufficient interest in the matter. The courts have, however, expressed their dissatisfaction at the potential that exists to seek judicial review merely to stop somebody from doing something which the claimant disapproves.

There are many pitfalls for a contracting authority when tendering a contract and there seems to be a growing trend in the direction of challenging contracts which do not appear to be properly procured.

Presently, one of the perceived advantages of making a challenge under judicial review is that the time limit for bringing proceedings is "promptly and in any event within 3 months," considerably more time than under the Regulations. However, it is worth noting that in relation to judicial review, the current government feels that this means of challenge is being abused and has communicated that it plans to combat this "abuse" of the judicial review. One of the ways they have suggested that this can be done is through the time limits for procurement claims made under the judicial review regime being brought into line with those in the Regulations, i.e. that a challenge must be brought within 30 days from when the bidder knew, or ought to have known, of the breach.

Furthermore, in order to assert that a procurement process should be subjected to judicial review, the claimant must not only show that there has been a breach of procurement law but also that there are the grounds for asserting judicial review, which may not be applicable in all circumstances.

Conclusion

There are many pitfalls for a contracting authority when tendering a contract and there seems to be a growing trend in the direction of challenging contracts which do not appear to be properly procured.

This was seen in the West Coast franchise case, where Virgin brought parallel procurement and judicial review challenges to the procurement process that the Department for Transport had carried out; the threat of legal proceedings is a useful weapon for bidders and may be enough to encourage an investigation into the process or the contracting authority to back down and run the procurement process again.

One of the most important points to be aware of as a bidder is the strict time limits that apply within which a challenge to a procurement process can be made and that a challenge should be made promptly, as soon as a bidder becomes aware of it.

In England, the Technology and Construction Court is experienced at handling procurement cases and tends to deal with them speedily and in an expedient manner. As a general rule, it would be a good idea to look to the Court to resolve procurement disputes.

Footnotes

1 Case C-532/06, Lianankis v. Alexandroupolis, [2008] E.C.R.I -251.

2 Turning Point Limited v. Norfolk County Council [2012] EWHC 2121 supported by inter alia Sita UK Ltd v. Manchester Waste Disposal Authority, [2010] EWHC 680(Ch) and Case C-406/08 Uniplex (UK Limited v. NHS Business Services Authority.

3 C-456/06 Pressetext v. Republik Österreich (Bund), [2008] EUECJ C-456/06.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.