The key procurement legislation2 applicable in England, Wales and Northern Ireland is the Public Contracts Regulations 2015 (PCR), the Utilities Contracts Regulations 2016 (UCR), the Concession Contracts Regulations 2016 (CCR), and the Defence and Security Public Contracts Regulations 2011 (Defence Regulations), referred to collectively in this chapter as the 'procurement regulations'.
The PCR, UCR and CCR do not apply to Scotland, which has its own procurement legislation, while the Defence Regulations apply throughout the United Kingdom. The Scottish Ministers have devolved competence to make procurement regulations by virtue of Section 53 of the Scotland Act 1998. The key procurement legislation applicable in Scotland, which implements the corresponding EU directives, is similar to that in the rest of the United Kingdom: the Public Contracts (Scotland) Regulations 2015; the Procurement (Scotland) Regulations 2016; the Utilities Contract (Scotland) Regulations 2016; and the Concession Contracts (Scotland) Regulations 2016, all of which came into force on 18 April 2016.
The procurement regulations implement the corresponding EU directives. The PCR came into force on 26 February 2015, and the UCR and CCR came into force on 18 April 2016.3 Contracts for health services above £663,540 in value let by the National Health Service (NHS) and clinical commissioning groups can be subject to the 'light touch regime' in the PCR (see Section V.ii). Separate procurement regulations4 specific to the health sector continue to apply (alongside the PCR) to contracts for NHS healthcare services regardless of contract value.
The Small Business, Enterprise and Employment Act 2015 (SBEE Act) gives the UK government power to make further regulations in relation to procurement.5
Beyond the EU Directives and procurement regulations, it is also important to consider the case law of the Court of Justice of the European Union (CJEU) and the General Court, the general EU Treaty principles of transparency, equal treatment, non-discrimination and proportionality, and the decisions of UK courts.
The Cabinet Office (part of Her Majesty's Treasury) has responsibility for central government procurement policy; it and the Crown Commercial Service (CCS), an executive agency of the Cabinet Office, publish guidance notes and procurement policy notes (PPNs) on a range of issues. In Northern Ireland, policy and guidance are issued by the Central Procurement Directorate, and the Welsh Minister for Finance and Government Business has issued the Wales Procurement Policy Statement. The Scottish Ministers issue guidance under the equivalent Scottish legislation.
Formal legal challenges to procurement decisions are made in the High Court. However, less formal options exist. The Cabinet Office's Public Procurement Review Service6 allows bidders to make complaints, and the SBEE Act reinforces this by providing a statutory basis for its procurement investigations and enabling the investigation of procurement processes and practices of certain contracting authorities by a government minister. Bidders can also refer matters to NHS Improvement, where the contracting authority is a Clinical Commissioning Group or NHS England. NHS Improvement may use its investigation and enforcement powers under the Procurement, Patient Choice and Competition Regulations (No. 2) 2013 to prevent or remedy breaches of procurement law, and can even declare arrangements for the provision of NHS healthcare services ineffective if there has been a serious breach.
II YEAR IN REVIEW
This year has been dominated by Brexit, a continued increase in challenges to procurements and, more recently, the response to the covid-19 pandemic.
On 31 January 2020, the UK officially exited the European Union having passed the European Union (Withdrawal Agreement) Act 2020, but its relationship with the EU during the current transitional period effectively maintains the status quo. The transitional period is set to end on 31 December 2020 with the UK still preparing for a possible 'no-deal' scenario and any extension to this period requiring approval by 1 July 2020. At the time of writing, the UK and the EU have exchanged draft legal texts setting out their respective positions on their future relationship and continue to negotiate.
As part of the UK's domestic preparation for Brexit, the UK government and Scottish ministers have introduced statutory instruments (amending regulations7) that, at the end of the transition period, will amend or remove provisions in the UK regulations that would otherwise be inoperable or inappropriate after that date. The key difference under these changes is that procuring entities will have to send notices (e.g., contract advertisements) to a new UK e-notification service instead of to the EU Publications Office. The UK government has also published a number of guidance notes on matters relating to public procurement as part of its preparations for Brexit.8
In the event that no agreement is reached on the future EU-UK relationship and the transition period is not extended, the amending regulations would come into effect immediately. At present, the UK regulations and EU law continue to apply unamended. After the transition period the changes made by the amending regulations will come into effect and ministers will have powers, for a short period, to make further necessary amendments and corrections to the UK regulations to ensure they are workable in the UK context. However, more significant changes would need to go through the full parliamentary procedure and are unlikely in the short term.
The UK is currently a party to the World Trade Organization Government Procurement Agreement (GPA) through its EU membership. The UK began negotiations in June 2018 to become a member in its own right following its withdrawal from the EU, and on 27 February 2019 the GPA members approved the UK's accession to the GPA as an independent member, which will take effect at the end of the transition period.9 This will require the UK to open up higher value public procurement opportunities to other GPA parties (including EU Member States) in exchange for their public procurement market being opened up in a similar way.
There have also been several key court decisions, including AEW Europe v. Basingstoke and Dean Borough Council,10 where the court considered the thorny issue of whether the remedy of ineffectiveness is available where the contract that is awarded departs from the precise wording of the contract notice that started the procurement process leading to the award. The argument of the claimant was that the first ground for a declaration of ineffectiveness was available because the contract that was awarded departed so far from the original contract notice that the contract notice no longer applied, and therefore no contract notice was ever placed for the awarded contract. For a number of practical reasons (temporal, and the fact the claimant was not part of the procurement process concerned) this was the only remedy reasonably available to it. Rather than treating it as an issue of contract modification and assessing whether the contract was materially different from that envisaged by the contract notice, the court held (following the reasoning in Alstom Transport v. Eurostar International Limited11) that the relevant test was to determine whether there was an effective contract notice capable of being related to the procedure and the contract awarded; using this 'mechanistic' test, regard should be had to the fact that the contract notice 'sparked the competition' that led to the contract being awarded. The court concluded that there was 'a sufficient and indeed close connection' between the contract notice and the awarded contract. To an extent, this decision reflected the need for a commercially workable regulatory framework for awarding public contracts that recognises the realities of specific requirements changing over time.
Amey Highways Ltd v. West Sussex County Council12 potentially significantly limits the ability of contracting authorities to control risk of challenge by 'winding back the clock' to an earlier stage of the procurement, or abandoning it altogether. The claimant, an unsuccessful tenderer, challenged the award of the contract on the basis that the evaluation was erroneous and that it, rather than the preferred bidder, should have been awarded the contract. Having failed to have the claim struck out for being time-barred, the contracting authority sought to abandon and re-run the procurement rather than take on potentially costly litigation. The claimant then sought to challenge the lawfulness of the abandonment and its effect on its claim. The court held that, but for the litigation, the contracting authority would have entered into the contract with its preferred bidder and that, if its challenge was correct, the claimant would have suffered a loss a result of not being awarded the contract. Accordingly, the claimant's right to challenge the award accrued at the point where the contracting authority would have signed the contract with the preferred bidder. The abandonment, despite being made for lawful reasons, did not extinguish the claimant's cause of action, and the claimant remained free to pursue its claim for damages. Contracting authorities will now need to be mindful of the original timetable to signing when considering the implications of a decision to abandon, to avoid a protracted procurement dispute.
A case regarding the scope of the CCR13 confirmed the approach taken in Faraday,14 that, for there to be a public contract, there must be a legally enforceable obligation to perform a relevant activity and, when assessing whether this is the case, a transaction must be looked at as a whole, looking at its substance rather than form. This particular case concerned a transaction for the lease of land. The court held that the fact the land may be used by the lessee for a commercial purpose (in this case, for advertising) does not prevent the transaction being one 'for land' and therefore exempt from the application of the CCR where there is no positive obligation to use the land for the purpose of advertising.
The courts' recent decisions in relation to the regular applications to lift the automatic suspension have tended to reinforce the difficulty for challenging bidders in maintaining the suspension. This is particularly the case when the procurements relate to significant projects of widespread or national importance. A key example from the past year is Alstom,15 where the court decided to lift the automatic suspension. The claimant argued that damages were not an adequate remedy given that the defendant was claiming (on the basis of the decision in Energy Solutions)16 that the alleged breaches were not 'sufficiently serious' to warrant damages, and that it might ultimately be left without any remedy. This argument fell away, however, when the defendant changed its position and conceded that a breach of the type claimed would have been sufficiently serious to justify damages; the public safety concerns and disruption to the travelling public arising from aged signalling equipment swung the balance of convenience in favour of lifting the suspension. Another key example from the past year where the suspension was lifted is Circle Nottingham v. NHS,17 discussed further below in Section IX.iii.
The outbreak of covid-19 saw the CCS release three PPNs. PPN 01/20 provided guidance to contracting authorities in responding to urgent procurement needs. PPN 02/20 provided practical guidance to contracting authorities and suppliers on keeping payments flowing through the supply chain and encouraged all contracting authorities to provide support to their suppliers during the disruption arising from covid-19. PPN 03/20 promoted wider use of 'procurement cards', by more staff and for increased categories of goods and services, and recommended raising key card holders' transaction limits to £20,000 and monthly caps to £100,000. At the time of writing there was no further guidance or legislation regarding procurement and covid-19 but, along with much of the global economy, suppliers and procuring entities were facing significant issues.
III SCOPE OF PROCUREMENT REGULATION
i Regulated authorities
The PCR regulate most public sector entities. Many are specifically listed in the PCR (e.g., government departments); others are regulated on the basis that they are 'bodies governed by public law'.18
Contracts awarded by private firms are regulated by the PCR in limited circumstances for certain projects. Contracting authorities are required to ensure that, where they subsidise certain works and services contracts by more than 50 per cent, the subsidised contract is competitively tendered under the PCR.19 More generally in relation to grant-funded projects, a condition of the funding may in practice require grant recipients to let contracts for the project by competitive tender.
The UCR apply to utility activities carried out by the public sector entities regulated by the PCR, other bodies subject to their control (public undertakings) and utilities pursuing the relevant activity on the basis of special or exclusive rights granted by a competent authority.20 Pursuant to EU derogations, the UCR do not apply to exploration for and exploitation of oil and gas, or to the generation and supply (but not transmission) of electricity and gas, on the basis that these are competitive markets.
The CCR apply to the award of works and services concessions by the entities regulated by the PCR and the entities covered by the UCR (when pursuing a utility activity).
The Defence Regulations apply to all entities covered by the PCR and the UCR, and the equivalent Scottish regulations.
ii Regulated contracts
Generally, contracts for the construction of works, supply of goods and provision of services valued at or above specified EU financial thresholds are subject to the procurement regulations.21
The financial thresholds applying from 1 January 2020 are:
|PCR||UCR Defence Regulations||CCR|
|Goods||£122,976 or 189,330**||£378,660||Not applicable|
|Services*||£122,976 or 189,330**||£378,660||£4,733,252|
* For 'light-touch' services, the threshold is £663,540 under PCR, £884,720 under UCR and £4,733,252 under CCR (there is no light touch regime for the Defence Regulations).
** Broadly, the lower threshold applies to central government and the higher threshold to all other authorities.
Below-threshold contracts are not subject to the procurement regulations, but some form of advertisement and a fair, competitive tender procedure is required if there may be certain cross-border interest.22 The PCR, however, contain limited additional provisions for below-threshold contracts that are designed to assist small to medium-sized enterprises (SMEs)23 which go beyond the requirements of the 2014 Public Sector Directive (e.g., the advertising obligations outlined in Section V.i).
The UCR apply only to regulated utility activities,24 except in the case of concession contracts, when the CCR will apply. Procurements in relation to a utility's other activities are unregulated unless the utility is also a contracting authority for the purposes of the PCR, in which case its non-utility activities will be subject to the PCR.25
The Defence Regulations apply to the procurement of defence and sensitive security equipment, works and services. Works and services concession contracts in these fields are covered by the CCR. The most sensitive defence contracts may still be awarded outside the scope of the procurement regulations.
One area that can cause particular difficulties is land redevelopment. Land redevelopment often requires cooperation between a local authority and a private developer, and these arrangements are negotiated directly between a major local landowner and the authority without a competitive process. In practice, a number of local authorities have taken such arrangements outside the procurement regulations by avoiding imposing any legally binding obligation upon the developer to build.26 As noted in Section II, a UK Court of Appeal decision27 has found that contingent legally enforceable obligations to perform works will constitute a public works contract that ought to be advertised and procured under the procurement regulations.
IV SPECIAL CONTRACTUAL FORMS
i Framework agreements and central purchasing
Framework agreements are extensively used. Many are multi-supplier frameworks, typically involving a mini-competition among all framework panellists at the call-off stage. The CCS frameworks for central government are an example of this. Single-supplier frameworks are also common.
Framework agreements are often established by one authority on behalf of itself and a (frequently very large) number of other authorities.
Dynamic purchasing systems are not widely used at present.
Utilities have used both framework agreements and qualification systems widely to reduce the burden of procurement processes, often establishing single-supplier framework agreements for one or two control periods (i.e., five or 10 years). Under the UCR, frameworks must now be limited to eight years, unless a longer period can be justified.
ii Joint ventures
Public-public JVs are common. They have typically relied on the Teckal28 or the Hamburg Waste29 exceptions for 'in-house' and cooperation agreements in the public sector that meet certain conditions, which are not subject to competitive tender under the procurement regulations. These exceptions are 'codified' in the PCR, UCR and CCR.30
JVs have sometimes been used in public-private partnerships (PPPs), but typically the appointment of the JV partner is advertised and tendered.
PPPs have typically been procured under the competitive dialogue procedure. The PCR now provide the option of the competitive procedure with negotiation.31 This has obvious similarities with competitive dialogue, but the greater flexibilities32 offered by the competitive dialogue procedure may mean that it remains the more attractive option.
The UCR have separate rules on JVs and intra-group supplies. In practice, however, they have not been as widely used as the public sector rules embodied in the Teckal and Hamburg Waste exceptions.
V THE BIDDING PROCESS
Above-threshold33 contracts must be advertised in the Official Journal of the EU (OJEU). The PCR also require contracting authorities to publish details of these contracts on the government portal (Contracts Finder). Similarly, the PCR require that, where a contracting authority advertises contracts that meet lower minimum thresholds (£10,000 or more in the case of central government authorities, and £25,000 or more for sub-central contracting authorities or NHS trusts), it must also publish information about the opportunity on Contracts Finder, regardless of any other means it uses to advertise the opportunity. This requirement does not apply to contracting authorities carrying out devolved functions in Scotland, Wales and Northern Ireland. In Scotland, contracts that meet a minimum threshold of £50,000 (for supplies and services contracts) or £2 million (for works contracts) must be advertised on the Public Contracts Scotland website.34
Voluntary ex ante transparency (VEAT) notices can be used where authorities directly award a contract without a competitive process, to seek to overcome the risk of the contract being declared ineffective because it was not properly advertised in the OJEU. However, a VEAT notice is unlikely to offer such protection unless the authority, acting diligently, had a legitimate belief that the procurement regulations did not apply and has been sufficiently transparent in the VEAT notice about the proposed transaction.35
For above-threshold contracts, the procurement regulations generally require use of one of the prescribed procedures. Under the PCR these are the open, restricted, competitive with negotiation, competitive dialogue and innovation partnership procedures. The PCR also provide for the negotiated procedure without prior publication of an OJEU advertisement (that is, a direct award) in certain exceptional circumstances. The procedures available under the UCR are the open, restricted, negotiated, competitive dialogue and innovation partnership procedures.
The PCR and UCR include light-touch regimes36 for the award of contracts for health, social, education and other specific services.37 Subject to compliance with certain mandatory requirements (e.g., principles of transparency and equal treatment), contracting entities have significant flexibility in determining the procedures to be applied.
The PCR apply a number of procedural requirements to below-threshold contracts. In addition to the advertising requirements (described in Section V.i), these are a prohibition on including a separate pre-qualification stage in the tender process and a requirement to publish information on Contracts Finder in respect of contracts that have been awarded.
Under the CCR, contracting entities are free to decide on the procedure to be followed, subject to certain specified safeguards; even lighter requirements apply in respect of light-touch services.
The Defence Regulations offer unrestricted use of the restricted and the negotiated (with prior advertisement) procedures. The competitive dialogue procedure is available for particularly complex contracts and the negotiated procedure (without prior advertisement) in extremely limited circumstances.
Under the Defence Regulations and the UCR, authorities and utilities generally use the negotiated procedure with prior advertisement in the OJEU.
iii Amending bids
In a number of court cases, the courts have upheld an authority's refusal to allow bidders to correct defects in, or omissions from, their bid.38
The dichotomy between a right and a duty of an authority to allow correction of defects in, or omissions from, bids arose in the case of Hersi & Co39 and received marked criticism from Coulson J (as he then was) as running a real risk of over-complication. In our experience, authorities take different approaches to this issue.
The PCR and UCR contain express provisions dealing with tenders where information or documentation appears to be incomplete or erroneous.40 Although those provisions appear to allow authorities to request information or documentation to clarify or complete information or documents at tender stage (as well as pre-qualification stage), the authority must observe the principles of equal treatment and transparency in exercising this right. Therefore any decision to allow the submission of such information must be taken with care and with regard to those principles.
i Qualification to bid
The procurement regulations replicate the grounds for assessing bidders' fitness to contract set out in the corresponding EU directives.
There are also Cabinet Office and CCS publications on the qualification stage, which require that:
- authorities use a standard Selection Questionnaire (which has been aligned with the requirements of the European Single Procurement Document) and have regard to associated CCS guidance on the selection stage that develops general principles including self-certification, 'self-cleaning' and proportionality;41
- selection criteria relating to a bidder's reliability, as demonstrated by its performance of past contracts, are established and applied in procurements by central government departments, their executive agencies and non-departmental public bodies for contracts relating to information and communications technology, facilities management and business processing outsourcing and which have a value of £20 million or greater;42
- selection criteria relating to a bidder's payment of suppliers, as demonstrated by its performance of past contracts, are established and applied in procurements by central government departments, their executive agencies and non-departmental public bodies for contracts relating to goods, services and/or works (including framework agreements and dynamic purchasing systems) with an anticipated value above £5 million (excluding VAT) per annum;43 and
- bidders convicted of tax offences or successfully challenged under the 'General Anti-Abuse Rule' may be excluded from public procurements.44
ii Conflicts of interest
The PCR, UCR and CCR require authorities to take appropriate effective measures to prevent, identify and remedy conflicts of interest.45 Economic operators may be excluded from participation in a procurement procedure where a conflict of interest cannot be effectively remedied by other less intrusive means.46 The provision is very wide, extending to 'financial, economic and other personal interest' that is either actual or even 'perceived' to compromise impartiality. In Counted4,47 the court noted that 'other personal interest' need not be financial but could amount to anything pertaining to the relevant individual. This has become an area of increased scrutiny by both challenging bidders and contracting authorities, as the circumstances where a conflict may arise, or an allegation of conflict could be made, are wide ranging. The CCS has issued a PPN reminding contracting authorities of their obligations in applying mandatory and discretionary exclusion grounds and managing conflicts of interest in public procurement.48
iii Foreign suppliers
The procurement regulations do not prevent foreign suppliers from tendering for public contracts, but utilities may (or in some cases must) reject certain bids to supply goods from third (non-EU) countries with which the EU does not have reciprocal agreements.49
The PCR, UCR and CCR only confer a right to challenge a breach of the regulations upon:
- a person from an EEA50 state;51
- a person from a World Trade Organization GPA state,52 where the GPA applies to the procurement concerned;53 and
- a person from another state if a relevant bilateral agreement applies.54
The Defence Regulations only confer rights to challenge breaches of the regulations on persons who are nationals of, and established in, an EU Member State.
Arguably, foreign persons who do not have a right to challenge under the procurement regulations may seek to bring a similar challenge by way of judicial review or for breach of an implied contract. In practice, however, many foreign-owned businesses have rights to challenge because they bid through a subsidiary incorporated within the EEA.
i Evaluating tenders
Most contracts are awarded using award criteria implementing a blend of quality and price.55 Approaches to setting award criteria vary. Many authorities use a very detailed marking scheme with each small element of the project receiving a predefined mark (e.g., 0.3 per cent for proposals on staffing levels); others take a much broader approach, with no subcriteria and global figures for each criterion of, say, 15 or 20 per cent. Tenders structured to be entirely pass or fail on quality aspects, with the rest of the evaluation based on price, are also encountered.
Under the PCR, UCR and CCR, authorities must disclose the evaluation criteria from the date of publication of the notice in the OJEU. This allows bidders to understand what is important to the authority and to decide whether to participate accordingly.56 Where the Defence Regulations apply, authorities must disclose the marking criteria, at the latest, when issuing the contract documents (e.g., in the invitation to tender).
The courts tend to uphold disclosure of the main criteria and subcriteria only, on the basis that disclosure of the finer detail would not in fact affect the content of bids.57 Nevertheless, in practice many authorities disclose full details of the marking scheme, regardless of whether this is strictly required by law.
ii National interest and public policy considerations
Under the procurement regulations, national interest can be taken into account only to a limited extent. Authorities may not favour local business. For example, while specifications may refer to British Standards, they must expressly permit equivalent standards from other European jurisdictions.
The government has adopted a policy on how procurers should deal with businesses that have adopted certain aggressive tax avoidance measures.58
Another key government policy is securing access to public contracts for SMEs. This policy is in part implemented through the PCR59 and reinforced by CCS guidance.60 The government has acknowledged the importance of prompt payment for SMEs by requiring public sector contracting authorities to pay invoices to their suppliers within 30 days and to ensure that prompt payment is enforced through the supply chain. Contracting authorities are required to publish data demonstrating compliance with these requirements at the end of each financial year.61
The PPN on supply chain visibility62 directs central government departments, their executive agencies and non-departmental public bodies tendering contracts under the PCR with a value above £5 million per annum to require the successful prime suppliers to:
- advertise on Contracts Finder any subcontract opportunities with a value over £25,000 that arise after contract award (although authorities may consider setting a higher threshold where the £25,000 threshold is overly burdensome to suppliers); and
- report on how much they spend on subcontracting and how much they spend directly with SMEs in the delivery of the contract.
Further policies include obtaining commitments from suppliers to provide training and apprenticeships,63 and guidance, a digital tool and training package to help tackle modern slavery in government supply chains.64
VIII INFORMATION FLOW
During the procurement process, authorities must ensure they give bidders sufficient information to enable them properly to understand the authority's requirements and to ensure a 'level playing field'. This is particularly important where an incumbent service provider will be in a privileged position when a new procurement is run because it has additional information. The PCR and UCR require authorities to take appropriate measures to ensure that competition is not distorted by the participation of bidders that have had prior involvement in the procurement procedure (e.g., in the preparation stage).65 Where the distortion of competition cannot be effectively remedied by other less intrusive means, bidders may be excluded from the procedure.66
Authorities may withhold information from bidders on a number of grounds such as the public interest, the legitimate commercial interest of any person or possible prejudice to fair competition between economic operators.67 Additionally, authorities must not disclose information reasonably stipulated by the bidder as confidential,68 and under the Defence Regulations an authority may impose measures to protect classified information.69
Under the procurement regulations, authorities are required to notify bidders and supply certain information when they make an award decision. They must then 'stand still' for a minimum of 10 calendar days before signing the contract.70 This period allows unsuccessful bidders time to bring a legal challenge to prevent the contract award if they consider that the award decision is unlawful, provided that the bidders are otherwise within the limitation period for procurement claims. The standstill requirement often proves to be onerous for authorities, which must supply scores and a narrative of the characteristics and relative advantages of the winning bid to each unsuccessful bidder.
Many authorities consider that best practice is to give fulsome details of their reasons in the standstill notice, so as to be seen to be transparent, to flush out any complaints as soon as possible, to seek to ensure that the time for bringing a challenge in the courts is running on any complaints (see Section IX.i), and to reduce the risk of delay where a bidder asks for more information and claims that the standstill notice is defective. Authorities should also be mindful of the need to provide standstill information to all bidders, even those who have previously been disqualified, unless the disqualification has been upheld by a court or the full extended limitation period for any challenge stemming from that disqualification has passed.
IX CHALLENGING AWARDS
The EU rules on challenging procurement decisions, some of which are optional, have been implemented in the procurement regulations. The main options that have been adopted are that courts are not to make declarations of ineffectiveness where overriding reasons relating to the general interest require the contract to be maintained and that, in certain circumstances, courts may shorten the contract instead of declaring it ineffective.71
The courts may agree to expedite procurement cases at the parties' request, which means that a typical first instance judgment may be handed down within a number of months following commencement of proceedings. Nonetheless, because of the cost, delay and inherent litigation risk in proceedings, many cases are settled without a full trial. Expedition can be key to the success of any procurement challenge by an unsuccessful bidder; it significantly increases both the likelihood of maintaining the automatic suspension (as such a suspension would only be in place for a short time pending a full expedited trial)72 and the ability to adhere to a timetable, which means obtaining judgment on a mid-tender challenge before any contract is awarded.73
Procurement challenges necessarily require the establishment of confidentiality rings to protect tenderers' commercially sensitive and confidential information. The contracting authority will need to have recorded and be able to evidence its evaluation process, or face possible legal challenge and criticism by the court if it fails to do so.74 Disclosure of key information may be anticompetitive, prevent a fair and equal re-tender, or negatively affect the commercial interests of a bidder. The recent approach has been for contracting authorities to adopt a 'neutral' position on disclosure, as Merseytravel did in Bombardier v. Merseytravel,75 so that the real focus of any dispute is between the successful and challenging bidders who are often competitors in the same market. However, the court in that case ruled that costs will be payable by a successful tenderer (even if it is a non-party) if it does not permit the contracting authority and challenging bidder to agree sensible and reasonable disclosure directions.
The Technology and Construction Court in England and Wales published guidance in the summer of 2017 on confidentiality rings in procurement proceedings, disclosure and pre-action conduct in an annex to the Technology and Construction Court Guide.76 The protocol also seeks to encourage the use of alternative dispute resolution to resolve cases. While the protocol is not binding, failure to follow the protocol may lead to a party being penalised in costs.
The losing litigant is generally required to pay 60 to 70 per cent of the other party's legal costs, in addition to all of its own legal costs, and in procurement cases this can extend to meeting the majority of the legal costs of the successful bidder if, as an interested party, the presiding judge feels the successful bidder has assisted the court.77
The trend continues towards increased challenges. Pre-action correspondence challenging a decision is frequently written and can be successful. In England, it is still rare for a bidder to be successful in a court challenge. There have been more bidder-friendly decisions in recent years, particularly on upholding the automatic suspension, as in Lancashire Care,78 Bristol Missing Link79 and Counted4,80 but that is still the exception rather than the norm, and normally only achievable where a challenger is the incumbent provider. Northern Ireland is perceived by some to be more bidder-friendly. However, as with the courts in England, in reality much turns on the specific facts and merits of the cases that have actually proceeded to a hearing or trial (and the appetite of the specific bidders and authorities to fight or to settle challenges). The case of Lowry Brothers81 shows that the authority can succeed in Northern Ireland.
Procurements can provide their own complaints mechanisms, but High Court litigation is the main method of challenging awards.
Each High Court jurisdiction (England and Wales, Northern Ireland and Scotland) is separate, and has its own case law, save that the Supreme Court is the highest appellate court for all UK jurisdictions. Each court will have regard to relevant case law from the other jurisdictions.
The reason that challenges tend to be brought in the High Court stems largely from the very short time limit set for commencing these proceedings. At 30 calendar days (from when the claimant knew or ought to have known of grounds for bringing a claim), the limitation period for procurement claims is the shortest in English law. It can be extended (up to three months) where the court determines there is good reason. The trend in England has been to uphold the limitation period strictly;82 however, the case of Amey Highways83 provides an example of a case in which the court was prepared to extend time, albeit just for a few days.84 In Northern Ireland the courts are more flexible.85
It is important to note that the 30-day time limit for bringing claims only applies to claims brought pursuant to the PCR, UCR or CCR. The Court of Appeal confirmed in Arriva Rail East Midlands Limited86 that, in the context of procurements for rail franchises (which are expressly excluded from the scope of those regulations and instead governed by Regulation 1370/200787), in the absence of specific statutory time limits the general rules for private law claims, including those for Francovich damages, will apply, resulting in a six-year limitation period.
There is an increasing trend for parties to a potential procurement claim to reach both an agreement to extend the standstill period, and any applicable limitation period. It was previously considered extremely risky to enter into any agreement that would 'standstill' the 30-day limitation period, given the operation of the regulations and strict application of time limits, even though such standstill agreements are routinely used across the jurisdiction for other claims. However, there has been a softening on this position in recent months, since the Amey Highways88 case noted above, in which the court allowed a short extension of time on the basis of an agreement between the parties. Such agreements are now being used to provide more time for parties to exchange information and consider their positions before proceedings become unavoidable.
The remedies available in judicial review are a quashing order (to set aside the decision made) and a mandatory order (requiring the authority to make the decision again). Damages may also be sought, although not as a sole remedy. The Court of Appeal also confirmed in the Arriva Rail East Midlands89 case that, in circumstances where the PCR, UCR or CCR do not apply, it is not necessary to bring a public law claim in judicial review seeking to undo the underlying decision in order to pursue a private law claim for Francovich damages on the basis of a private law breach of statutory duty.
Claims under the procurement regulations can be brought in the High Court by economic operators, including contractors, suppliers and service providers.
Some bidders and third parties, such as subcontractors, who do not enjoy protection under the procurement regulations, bring claims in judicial review in the High Court, asking the Court to review the decision of the public authority. However, it does appear that the approach to procurement challenges by subcontractors is changing after the Sysmex case,90 when Sysmex challenged as an embedded subcontractor only, even when it was not in a position to sign the contract, nor to deliver the services required as a whole.
ii Grounds for challenge
Claims may be brought for breach of a duty owed to the bidder under the procurement regulations if the bidder either suffers or risks suffering loss. Examples include:
- undisclosed evaluation criteria and weightings, in breach of the obligations in the procurement regulations, or the duty of transparency under the Treaty on the Functioning of the European Union, or both;91
- manifest error in evaluation;92 the error must be obvious, and expert evidence is not permitted to prove it;93
- failure to exclude abnormally low tenders;94
- unlawful abandonment of procurement;95 and
- post-award substantial changes to contracts, in reliance on the codification of pressetext Nachrichtenagentur96 in the procurement regulations.
There are four main grounds for judicial review of decisions:
- error of law;
- irrationality or Wednesbury97 unreasonableness (which is the closest that judicial review comes to a review of the merits);
- procedural unfairness or breach of natural justice; and
- legitimate expectation.
The procurement regulations provide three main remedies: suspension, ineffectiveness and damages.
The 'automatic' suspension, which is unique to procurement challenges, arises when a claim form is issued before the contract is awarded, and does not require a court hearing. Once in place, the authority cannot award the contract until the court ends the suspension, or the parties end it by agreement or a consent order.
In England, in cases where authorities have applied to lift the automatic suspension, they have usually been successful (although much turns on the merits of those cases in which applications are actually made). Traditionally, it has been extremely difficult to maintain the suspension in contracts in the health and social care sector, where patient wellbeing and safety are paramount, but in Lancashire Care,98 Bristol Missing Link99 and Counted4100 the courts were persuaded to do so. The most recent cases show that it is still more often than not that the suspension is lifted, particularly where significant procurements with large-scale impact or national importance are concerned, such as in Bombardier v. Hitachi Rail101 and DHL Supply Chain.102 Recently, in Circle Nottingham v. NHS,103 the court has also lifted the suspension where the claimant faced potential damage and loss of the sort discussed in Bristol Missing Link104 and Counted4105 and where doing so would likely result in 'paying twice' for the same service by virtue of a damages claim. This judgment thereby refines the rule laid down by Coulson J in Covanta Energy,106 which stated this 'could not be in the public interest': where there is a breach of procurement legislation that is sufficiently serious to justify an award of damages then paying twice was, where the cost was not unduly high, 'a price worth paying in order to achieve proper compliance' and this was in the contemplation of the legislatures when drafting the PCR. It appears now that while the prospect of paying twice remains a factor militating against lifting a suspension, the value of that payment is to be considered and weighed in the judicial scales.
In Northern Ireland, suspensions have generally been maintained.107
Under the procurement regulations, the court may also set aside the decision or amend a document.
A declaration of ineffectiveness may be made when one of the grounds for ineffectiveness is satisfied. For the PCR,108 these are:
- awarding a contract illegally without advertisement in the OJEU where this is required;
- awarding a contract in breach of the standstill period or automatic suspension with another breach of the procurement regulations; and
- awarding a specific contract under a framework agreement when the requirements relating to the reopening of competition are not followed or when tendering procedures are not followed in a dynamic purchasing system.
Ineffectiveness means that a contract is prospectively, but not retrospectively, ineffective from the date of the declaration. The court can deal with matters consequent on the contract being declared ineffective. It must also impose penalties and may award damages. Some contracting authorities and utilities make contractual provision for the parties' rights and responsibilities in the event of a declaration of ineffectiveness (as expressly permitted by the procurement regulations109 and encouraged by government guidance).110
The first ever successful claim in the UK for a declaration of ineffectiveness was in Scotland in the Lightways Contractors case.111 The court found that a call-off contract under a framework had been awarded to an economic operator not on the original framework. In the absence of any other valid procurement process, the award was unlawful and the contract declared ineffective. Faraday112 is the first case in England and Wales in which the court has made a declaration of ineffectiveness, having decided that where a developer of land has an option to and does draw down land and, in doing so, comes under an obligation to develop that land, that contingent obligation to carry out works is sufficient to amount to a public works contract caught by the PCR (and, therefore, should have been advertised and competed in accordance with those regulations).
Unless grounds for ineffectiveness exist, damages are the only remedy that can be awarded under the procurement regulations after the contract has been entered into. Claims for damages are usually for wasted bid costs, or loss of profit or opportunities. The EnergySolutions113 case requires that an authority's breach of the procurement regulations be sufficiently serious before damages can be awarded. It remains to be seen whether this will have a material impact upon the ability of claimants to recover damages and the development of the Alstom114 case (above) will be one to watch.
The remedies available in judicial review are a quashing order (to set aside the decision made) and a mandatory order (requiring the authority to make the decision again). Damages may also be sought, although not as a sole remedy.
With substantial increases to court fees from April 2015, there has been a trend in recent years towards non-monetary procurement claims, as the court fees to issue proceedings for such claims are considerably lower than for claims involving damages, but still have the benefit of attracting the automatic suspension. If no damages are claimed at the outset, non-monetary claims may become a potential means to frustrate applications to lift until there is judicial consideration of the issue, but it is likely a court would consider a decision not to claim damages from the outset as definitive in such a case.
Despite the current uncertainty around the terms of the future EU-UK relationship, it is expected that the rules governing public procurement in the UK will remain largely unchanged in the short term. There are currently no proposals on the table for major changes to the framework and principles of the procurement regime. The main impact of Brexit in the immediate term will be changes brought about by domestic amendment regulations designed to ensure that the current regime continues to operate effectively following the end of the transition period, including the requirement to use a new UK e-notification service for the publication of notices rather than sending notices to the EU publications office.
The future shape of UK procurement law will depend on the international agreements it chooses to make with the EU and other countries. As a signatory to the GPA, but outside the EU, the UK could have more freedom to set its own procurement policy than it currently has as an EU Member State, although many of the basic principles would remain the same. Much depends, however, on the nature of the UK's future relationship with the EU. Further commitments on procurement could be made as part of any eventual EU-UK trade agreement or other arrangement, which could require the UK rules to stay in closer alignment with the EU rules.
1 Louise Dobson is a partner, Ryan Geldart is a managing associate and Jack Doukov-Eustice is an associate at Addleshaw Goddard LLP.
2 Except for defence and security procurement, where the rules are UK-wide, this chapter focuses on the legislation in England, Wales and Northern Ireland.
3 The EU directives corresponding to the UK regulations currently in force are, therefore, 2014/24/EU, 2014/25/EC, 2014/23/EC, 2009/81/EC and 89/665/EEC. References in this chapter to the EU directives are to those EU directives currently implemented in the United Kingdom, unless otherwise stated.
4 The Procurement, Patient Choice and Competition Regulations (No. 2) 2013.
5 To date, only the Public Procurement (Electronic Invoices etc) Regulations 2019 have been made, covering electronic invoicing following the UK's exit from the EU in a 'deal' scenario (see Section II).
6 Previously called the 'Mystery Shopper' scheme but renamed on 29 November 2018.
7 Public Procurement (Amendment etc) (EU Exit) Regulations 2019 No. 560; Public Procurement (Amendment etc) (EU Exit) (No 2) Regulations 2019 No. 623; Defence and Security Public Contracts (Amendment) (EU Exit) Regulations 2019 No. 697; Public Procurement (Electronic Invoices etc) Regulations 2019; Public Procurement etc. (Scotland) (Amendment) (EU Exit) Regulations 2019 No. 112; and Public Procurement etc. (Scotland) (Amendment) (EU Exit) Amendment Regulations 2019 No. 114.
8 These include guidance on public-sector procurement under the EU Withdrawal Agreement (updated 8 August 2019); guidance on public-sector procurement from 31 January 2020 (updated 25 September 2019); guidance on bidding for overseas contracts from 1 January 2021 (published 16 August 2019) and PPN(2) 02/19 – Preparing for the UK leaving the EU (updated 9 May 2019).
9 Communication from the United Kingdom (WT/GC/206).
10  EWHC 2050 (TCC).
11  EWHC 1828 (Ch).
12  EWHC 1291 (TCC).
13 Ocean Outdoor UK Ltd v. Hammersmith and Fulham London Borough Council  EWCA Civ 1642.
14 R (Faraday Development Limited) v. West Berkshire Council  EWCA Civ 2532.
15 Alstom Transport UK Ltd v. Network Rail Infrastructure Ltd  EWHC 3585 (TCC).
16 See Section IX.iii and footnote 113.
17 Circle Nottingham Ltd v. NHS Rushcliffe Clinical Commissioning Group  EWHC 1315 (TCC).
18 PCR 2(1).
19 PCR 13.
20 See Alstom Transport v. Eurostar International Limited  EWHC 28 (Ch) Paragraphs 70 and 71, where the court held that Eurostar was not a utility.
21 In this chapter, the term 'above-threshold contract' is used to refer to contracts meeting these EU financial thresholds and 'below-threshold contract' to those that do not meet them.
22 See Commission 'Interpretative communication on the Community law applicable to contract awards not or not fully subject to the provision of the Public Procurement Directives', OJEU 2006 C 179/02.
23 See CCS 'Guidance on provisions that support market access for small businesses', August 2015.
24 As listed in UCR 9 to 15.
25 C-393/06 Ing Aigner, Wasser-Wärme-Umwelt GmbH v. Fernwärme Wien GmbH, Paragraph 59.
26 This relies on the CJEU decision in C-451/08 Helmut Müller GmbH v. Bundesanstalt für Immobilienaufgaben. See also R (on the application of Midlands. Cooperative Society Ltd) v. Birmingham City Council  EWHC 620 (Admin); and AG Quidnet Hounslow LLP v. Mayor and Burgesses of the London Borough of Hounslow  EWHC 2639 (TCC).
27 See footnote 14.
28 C-107/98 Teckal Srl v. Comune di Viano and another.
29 C-480/06 Commission v. Germany.
30 See CCS 'Guidance on 'public/public' contracts', August 2015.
31 See Section V.ii.
32 For example, under competitive dialogue the authority is not required to set out its minimum requirements at the outset of the procurement, and there is more flexibility to clarify, fine tune and optimise final tenders and to confirm financial commitments and other terms of the winning bid, provided essential aspects are not materially altered and there is no risk of distortion of competition or discrimination.
33 See footnote 20.
34 Section 23, Procurement Reform (Scotland) Act 2014.
35 C-19/13 Ministero dell'Interno v. Fastweb SpA, Paragraph 50 and Faraday Development Ltd v. West Berkshire Council  EWCA Civ 2532, Paragraphs 87 to 91.
36 See CCS 'Guidance on the new light touch regime for health, social, education and certain other service contracts', October 2015.
37 Set out in PCR Schedule 3, UCR Schedule 2 and CCR Schedule 3.
38 For example, R (on the application of Harrow Solicitors and Advocates) v. The Legal Services Commission  EWHC 1087 (Admin); R (on the application of All About Rights Law Practice) v. Legal Services Commission  EWHC 964 (Admin); Hossacks (A firm of Solicitors) v. The Legal Services Commission  EWHC 2700 (Admin); and Hersi & Co Solicitors & Anor v The Lord Chancellor  EWHC 2667 (TCC).
39  EWHC 2667 (TCC).
40 PCR 56(4); UCR 76(4).
41 Cabinet Office and CCS PPN 'Standard Selection Questionnaire (SQ)', 9 September 2016. The guidance is issued under PCR 107(1).
42 PPN 04/15 'Taking Account of Suppliers' Past Performance', 25 March 2015.
43 PPN 04/19 'Taking account of a supplier's approach to payment in the procurement of major contracts', updated 29 August 2019.
44 PPN 03/14 'Measures to Promote Tax Compliance', updated 15 May 2015.
45 PCR 24; UCR 42; CCR 35. There are no express conflict of interest provisions in the Defence Regulations, but the same obligations arise because of the duty to comply with the principle of non-discrimination – see T-160/03 AFCon Management Consultants and others v. Commission, Paragraphs 75 and 90; although this case was decided under internal Commission rules, the same principles are likely to apply under the Defence Regulations.
46 PCR 57(8)(e); UCR 80; CCR 38(16)(d).
47 Counted4 Community Interest Company v. Sunderland City Council  EWHC 3898 (TCC).
48 PPN 01/19 'Applying Exclusions In Public Procurement, Managing Conflicts of Interest and Whistleblowing'.
49 UCR 85.
50 The EEA comprises the EU Member States plus Liechtenstein, Norway and Iceland.
51 For example, PCR 89.
52 In addition to the 28 EU Member States, the other GPA states are Armenia, Australia, Canada, Hong Kong, Iceland, Israel, Japan, Republic of Korea, Liechtenstein, Moldova, Montenegro, the Netherlands (with respect to Aruba), New Zealand, Norway, Singapore, Switzerland, Chinese Taipei, Ukraine and the United States.
53 For example, PCR 90(1)(a).
54 For example, PCR 90(1)(b).
55 In Scotland, contracts must be awarded on the basis of best price–quality ratio; price or cost alone cannot be used as the sole award criterion (Section 67, The Public Contracts (Scotland) Regulations 2015).
56 PCR 49; UCR 69; CCR 32.
57 In Healthcare at Home Ltd v. The Common Services Agency  UKSC 49, the Supreme Court endorsed the test of whether the 'reasonably well-informed and normally diligent' bidder would have understood the criteria in the same way.
58 See Section VI.i.
59 See Sections III and V.i.
60 For example, PPN 05/15 'Prompt payment policy and reporting of performance', 27 March 2015 and PPN 04/19 'Taking account of a supplier's approach to payment in the procurement of major contracts', updated 29 August 2019.
61 PPN 03/16 'Publication of payment performance statistics', 29 March 2016.
62 PPN 01/18 'Supply Chain Visibility', 10 April 2018.
63 PPN 14/15 'Supporting apprenticeships and skills through public procurement', 27 August 2015.
64 PPN 05/19 'Tackling modern slavery in governments supply chains', 18 September 2019.
65 PCR 41; UCR 9.
66 For example, PCR 57(8)(f).
67 See, for example, PCR 50(6) and 86(6).
68 See, for example, PCR 21.
69 Defence Regulations 11.
70 See, for example, PCR 86 and 87.
71 See, for example, PCR 100, and Section IX.iii on ineffectiveness.
72 Lancashire Care NHS Foundation Trust and another v. Lancashire County Council  EWHC 1589 (TCC).
73 Joseph Gleave & Son Limited v. Secretary of State for Defence  EWHC 238 (TCC).
74 See, for example, Lancashire Care (footnote 71), in which the court found a 'pervasive inadequacy' in the evaluation panel's approach, in particular in documenting the evaluation process carried out.
75 Bombardier Transportation UK Ltd v. Merseytravel  EWHC 41 (TCC).
77 Group M UK Ltd v. Cabinet Office  EWHC 3863 (TCC).
78 See footnote 71.
79 Bristol Missing Link Ltd v. Bristol City Council  EWHC 876.
80 See footnote 46.
81 Lowry Brothers Ltd v. Northern Ireland Water Ltd  NIQB 23.
82 See J Varney & Sons Waste Management Ltd v. Hertfordshire CC  EWCA Civ 708.
83 Amey Highways Ltd West Sussex County Council  EWHC 1976 (TCC.
84 It should be noted that in this case the authority had agreed a 'standstill agreement' that time would not run for limitation purposes for a specified period of time. Whilst the authority did not seek to argue that the court should not exercise its discretion to extend time during that period, the court noted that 'the existence of that agreement is good reason to extend time'. It is yet to be seen whether, as a result of this case, such agreements will become common practice in procurement claims.
85 See Henry Brothers (Magherafelt) Ltd v. Department of Education for Northern Ireland  NICA 59.
86 The Secretary of State for Transport v. Arriva Rail East Midlands Limited and others  EWCA Civ 2259.
87 Regulation (EC) No. 1370/2007 of the European Parliament and of the Council.
88 See footnote 82.
89 See footnote 85.
90 Sysmex (UK) Ltd v. Imperial College Healthcare NHS Trust  EWHC 1824 (TCC).
91 See, for example, McLaughlin & Harvey Ltd v. Department of Finance and Personnel  NICA 60; Lettings International Ltd v. London Borough of Newham  EWCA Civ 1522; Healthcare at Home Ltd v. The Common Services Agency  UKSC 49.
92 Woods Building Services v. Milton Keynes Council  EWHC 2011 (TCC), and BAM Civil Ltd v. The Department for Infrastructure , NIQB 68 where manifest error was established.
93 BY Development Ltd v. Covent Garden Market Authority  EWHC 2546 (TCC).
94 NP Aerospace Ltd v. Ministry of Defence  EWHC 2741 (TCC).
95 Amey Highways Ltd v West Sussex County Council  EWHC 1291(TCC).
96 C-454/06 pressetext Nachrichtenagentur GmbH v. Republic of Austria and others. In Gottlieb, R (on the Application of) v. Winchester City Council  EWHC 231 (Admin) the claimant was granted relief on this basis in a judicial review claim. The pressetext principles are now codified in the PCR, UCR and CCR (e.g., PCR 72).
97 Associated Provincial Picture Houses Ltd v. Wednesbury Corp  1 KB 223.
98 See footnote 71.
99 See footnote 78.
100 See footnote 46.
101 Bombardier Transportation UK Ltd v. Hitachi Rail Europe Ltd & Ors  EWHC 2926 (TCC).
102 DHL Supply Chain Ltd v. Secretary of State for Health and Social Care  EWHC 2213 (TCC).
103 See footnote 16.
104 See footnote 78.
105 See footnote 46.
106 Covanta Energy Ltd v. Merseyside Waste Disposal Authority  EWHC 2922 (TCC).
107 First4skills Ltd v. Department for Employment and Learning  NIQB 59; Traffic Signs and Equipment Ltd v. Department for Regional Development  NIQB 138, but see John Sisk & Son Holdings Ltd v. Western Health and Social Care Trust  NIQB 56, where the suspension was lifted.
108 Under the UCR, the third ground (c) only relates to contracts awarded under a dynamic purchasing system; under the CCR, only the first two grounds (a) and (b) apply.
109 For example, PCR 101(5) and (6).
110 'Implementation of the Remedies Directive: OGC Guidance on the 2009 amending regulations Part 3: The new remedies rules', Office of Government Commerce, 18 December 2009, paragraphs 43 to 48.
111 Lightways Contractors Ltd v. Inverclyde Council  CSOH 169.
112 See footnote 14.
113 Nuclear Decomissioning Authority v. EnergySolutions EU (Ltd)  UKSC 34.
114 See footnote 15.