UK: HFW Ports & Terminals Update - May 2010

Last Updated: 12 May 2010

This article first appeared in the April 2010 issue of Port Strategy

Tender Trials
By Anthony Woolich

Anthony Woolich examines how a new EU directive could lay bare port tender processes.

The new European Union Remedies Directive improving the effectiveness of review procedures concerning the award of public contracts was due to be implemented throughout the EU by 20 December 2009, aiming to provide more effective remedies for those suffering from breaches of the public procurement rules.

While this article describes the impact of the Directive in the UK, the impact is similar throughout the EU.

The Regulations focus on areas where potential bidders have, in the past, been frustrated in their attempts to secure an open and fair tender process. In particular, after contracts have been awarded, the remedies available to unsuccessful bidders were previously limited to a damages claim. Under the new Regulations, claimants are able to challenge the contract award and the courts are required to declare the contract ineffective in circumstances where it has not been properly tendered and no opportunity for challenge before contract award is given. This means that the risks of non-compliance have increased, but the successful contractor, as well as the port, bears the risk of the contract being declared ineffective. The Regulations also lower some of the obstacles faced by litigants and increase the range and gravity of the remedies available.

The Standstill Period

A key stage of the tender process for any potential claimant is the standstill period, which occurs after an announcement to award the contract to the successful bidder. A contract must not be entered into, nor a framework agreement concluded, before the end of the standstill period.

The Regulations replace the two-stage process under the old law with a single-stage obligation to provide the relevant information to all unsuccessful bidders in the standstill letter itself, rather than only to those who request it at a debrief meeting or in a subsequent letter during the standstill period. This should provide unsuccessful bidders with more time before the contract award to assess whether to bring a claim. A standstill letter must be issued to tenderers as soon as possible after the decision has been made. This must include:

  • the award criteria;
  • the reasons for the decision, including the characteristics and relative advantages of the successful tender;
  • the scores obtained by the recipient and the operator to be awarded the contract;
  • the successful operator's name; and
  • a precise statement of when the standstill period is expected to end.

Arguably, bidders must be put in a position to understand why they received their scores. A similar notice must also be sent to candidates, i.e. operators which applied to be included among the tenderers but did not submit an offer, either because they withdrew or were eliminated. But the notice to candidates will not include the relative advantages of the successful tender, because the candidate will not have submitted an offer.

The new standstill provisions clarify that the standstill period ends at midnight at the end of the tenth day after the date on which the standstill letter is sent (by fax or email). Where the standstill letter is sent other than by fax or email, the period ends at the latest by midnight at the end of the fifteenth day after the sending date. The rules on standstill do not apply to "Part B" service contracts, for example, transport by rail and water. In addition, the rules on standstill do not apply to call-off contracts made under a properly tendered framework agreement, although they do apply to the tender for the framework agreement. A key element of the Regulations is the automatic suspension of the tender process once proceedings are started which allege breach of the public procurement rules. The suspension remains in force until the end of the proceedings.

Declaration of Ineffectiveness

There is a new remedy of ineffectiveness, which may be sought once the contract has been entered into, in addition to damages. This involves a declaration of ineffectiveness by the court, with the effect that prospective obligations under the contract are cancelled, where contracts have been awarded in serious breach of the procurement rules. The grounds for ineffectiveness are:

  • where the contract has been awarded without the publication of an OJEU notice in circumstances where a contract notice was required: i.e. an illegal direct award;
  • award of the contract without complying with the rules on standstill or suspension, such that the operator has been deprived of the possibility of starting proceedings before the contract was entered into, combined with a breach of the public procurement rules which has affected the chances of the claimant of obtaining the contract; and
  • award of call-off contracts with a value in excess of the applicable threshold under a dynamic purchasing system in breach of applicable requirements.

If the court is satisfied that any of the grounds for ineffectiveness apply, it must make a declaration unless a derogation applies.

In addition to various specific derogations, there is a general interest derogation, such that if the court is satisfied that overriding reasons relating to a general interest require that the effects of the contract should be maintained, it must not make the declaration.

The Regulations provide that where a declaration of ineffectiveness is made, a financial penalty must also be ordered to be paid. In addition, damages may be available.

Where the court has decided, on the grounds of overriding general interest, not to grant a declaration, it must impose a financial penalty and/or require the duration of a contract to be shortened.

There are special time limits for seeking a declaration of ineffectiveness:

  • where a contract award notice has been published in the OJEU (or the claimant has been informed by the port of the contract's conclusion and been given a summary of the relevant reasons), then the time period during which the proceedings may be started is 30 days, beginning with the day after the date of publication of the contract award notice (or beginning with the day after the date on which the claimant was informed of the conclusion and given reasons); and
  • in other cases, where no notice has been published or information otherwise given to potential claimants, the proceedings must be started within six months of the day after the date on which the contract is entered into.

Easing a litigation path

The reforms will make litigation a little easier, and will shift the regulatory risk and ensure that this is shared, to an extent, with contractors. The introduction of a suspension obligation and new tougher remedies following contract signature are likely to encourage potential litigants to bring actions.

The additional debrief information required in the standstill letter and the automatic suspension on the issue and service of proceedings will assist claimants. It will be less risky to bring an action because the claimant will not need to incur the cost of seeking an interim injunction, and should not be required to grant a cross undertaking as to damages.

There are likely to be negotiations between contractors and ports on the allocation of procurement risk. Contractors who are to benefit from a direct contract award without a tender procedure may take a closer interest than previously in the public procurement rules. The ineffectiveness remedy could also be available in circumstances where an existing contract is secured or amended in a material way which triggers a new obligation to conduct a tender process.

In cases where the application of the public procurement rules is uncertain, the prudent approach may be to publish a transparency notice in advance of the contract award in order to remove the possibility of an ineffectiveness claim. The disadvantage of such a notice is that it attracts attention and invites challenge. The alternative may be some form of suspension of the contract during a preliminary period while the prospect of a declaration of ineffectiveness remains. This period can be limited to 30 days if a contract award notice is published in the OJEU. The downside of this again is that it attracts attention.

If an unlawful direct contract award may go unnoticed in the market, the most attractive option may be to wait and see for the whole six month period, possibly with some form of standstill under the contract or at least delay in undertaking obligations and committing expenditure which will be difficult to unravel or return in the event of an action being brought.

Taking steps to mitigate risks

There are a number of steps ports can take to protect themselves against the increased risks that exist under the new EU regime:

Firstly, all staff involved in procurements should be briefed and made aware of the importance of the standstill period and the ineffectiveness remedy.

Secondly, precedent procurement documentation should be prepared that takes account of the changes.

Thirdly, consideration should be given to whether guidance to evaluation teams should be updated, so that it is easier to compile details of the characteristics of tenders for debrief purposes.

And finally, consideration should be given to whether any action needs to be taken on proposals to make direct contract awards without a call for competition in light of the new remedies, including possible contractual provisions.

The Changed Dynamics of Terminal Concessioning

Samantha Roberts , who heads the Ports and Terminals Group at HFW, spoke on the topic of "The Changed Dynamics of Terminal Concessioning" focusing on the shape of tomorrow's terminal lease deals, at the TOC Asia conference in Shanghai on 16-18 March 2010. For further details of this event please visit www.tocevents-asia.com . For copies of our Port Strategy articles on this topic please view A Concessionaire's Market and Evaluating the options .

Emissions Trading

On 13 May 2010 HFW will be hosting a briefing focused on the European Union's plans to expand its emissions trading scheme. Whether you are in an industry which currently falls within the scheme, or one which is likely to be affected in the future, you will need to be ready for Phase III, which comes into effect in less than three years' time – although there are still a number of questions to be answered before then. We will be joined by a distinguished panel of industry experts who will give their views on the approaches which may be taken by the UK government and the EU on these issues. For more information about this event, including full programme and speaker profiles, please click here or contact events@hfw.com .

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.

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