ARTICLE
8 December 2009

New Law Threatens Signed Contracts

AC
Anthony Collins Solicitors

Contributor

Anthony Collins Solicitors
Until recently, once a contract was signed it could not be overturned for a breach of the EU procurement rules.
United Kingdom Government, Public Sector

Until recently, once a contract was signed it could not be overturned for a breach of the EU procurement rules. This will no longer be the case when new law comes into force this December.

There are three main areas where this law is likely to cause problems for housing associations, local authorities and other bodies subject to the EU procurement rules (known as "contracting authorities"). These are where:

  • a contract is not advertised via OJEU but should have been. This is a particular concern for development agreements following the Roanne case. Roanne said that development agreements with a total value over the EU tendering threshold need to be tendered via OJEU where the contracting authority has significant control over the development;
  • the contract award procedure has not been followed properly. The new Regulations specify what feedback has to be given to each tenderer. This includes detailed feedback on why they were unsuccessful. There must then be a standstill period of at least 10 days (or longer if this feedback is not given by email or fax) before the contract is signed;
  • the requirements for running mini-competitions under a framework agreement not followed correctly. This applies to contracts valued over the EU tendering threshold which are awarded through a mini-competition. The contract can be set aside where there are problems with feedback and the contracting authority does not use a standstill period. Contracting authorities need to ensure they follow these new procedures when running a mini-competition to call off works or services from a buying club.

In each of these cases the contract can be set aside for "ineffectiveness". (See below).

The new law is brought in by the Public Contracts (Amendment) Regulations 2009. These implement the EU Remedies Directive 2007. The Regulations say they apply to all procurements started after 20 December, although the European Commission has suggested they should be applied to all steps taken in any OJEU procurement after that date.

A contractor that wants to challenge a contract (either because it was not advertised via OJEU, because the tenderer did not follow the feedback procedure, or for irregularities in a mini-competition) has 6 months from signature of the contract to do so. Where a contract award notice is sent to OJEU, the period is reduced to 30 days from the date the notice is sent. The reduction to 30 days can also apply where the contracting authority gives full feedback to tenderers in accordance with the Regulations (but this could apply only to the third of the examples above).

The procedure to challenge a contract involves the contractor applying to court. Once the court application is served on the contracting authority, the contract cannot be signed until the court either allows the contracting authority to do so or decides the case.

Once a failure to advertise the contract or follow the tenderer feedback rules has been established, the court must make a declaration of ineffectiveness. This declaration must be made, unless the contracting authority can show "overriding reasons relating to the general interest" why it should not be.

A declaration of ineffectiveness invalidates the contract from the time the declaration is made. Anything done under the contract before the declaration is still valid. The parties to a contract can agree in advance what is to happen if there is a declaration of ineffectiveness. This can include an agreed level of damages.

We regularly run and review OJEU procurement documents for our clients. We can assist with as much or as little of the OJEU procedure as you require.

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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