Scarcity of public contracts and greater rights for providers increase the chances of challenge in public procurement, says TERENCE WOULFE-FLANAGAN.

The new “Review” Procedures (S.I. No. 130 of 2010 Regulations entitled European Communities (Public Authorities’ Contracts) (Review Procedures) Regulations 2010), aka “Remedies”, which were introduced in late 2009, give those entitled to challenge in public procurement considerably enhanced rights. A successful challenge now typically results in blocking the award of a contract or, if already awarded, its setting aside as “ineffective” or, in limited circumstances, the application of alternative penalties. The rules applicable to the utilities sector, while similar, are subject to different regulations and are not addressed in this article.

Background
Contracts that are subject to the review procedures
Known as “reviewable public contracts”, these include any contract, framework agreement, dynamic purchasing system, public works concession or design contest that is subject to the Public Sector Contract Regulations (S.I. No. 329 of 2006 Regulations entitled European Communities (Award of Public Authorities’ Contracts) Regulations 2006, parts 2 or 9 and, for a design contest, part 10), and whose value exceeds the relevant EU threshold.

Who, what and when?
Who are the potential challengers?
Known as “eligible persons”, they include unsuccessful candidates, bidders and any person who has, or has had, an interest in obtaining a reviewable public contract.

What happens when there is a formal challenge to a proposed contract award?
The clock stops. The award process must be suspended until the matter is determined by the High Court, or the court lifts the suspension of the award, or the proceedings are discontinued or otherwise disposed of.

What happens when there is a formal challenge to a contract that is already awarded?
If the challenge is successful, the contract is normally declared “ineffective” and unperformed aspects of the contract are cancelled. The court may impose alternative penalties in certain circumstances. Some reasons for declaring a contract “ineffective” are:

  • awarding a contract directly (i.e., without an advertised tender process) in circumstances where the procurement rules required its advertisement and competitive tendering;
  • awarding a contract in breach of the mandatory notification requirements and ‘standstill period’, if applicable; or
  • awarding a contract where court proceedings have commenced but the court’s decision is still outstanding.

How long does the right to challenge exist?
Thirty days is the norm, measured from:

  • the day after the adequate notification of the decision was formally sent to candidates and bidders;
  • the day after the decision being publicised by a contract award notice; or,
  • the time when the applicant (challenger) knew of or ought to have known of the alleged infringement.

In all other cases the period is six months after the award of the contract. In most cases this will relate to contracts awarded without publicity.

These periods are not to be confused with mandatory standstill periods during which a contracting authority is prohibited from awarding the contract.

How to reduce the risk of a successful challenge
Know the rules
Every public contract that could be of cross-border interest within the EU is governed by the applicable rules of the European Treaty (Treaty on the Functioning of the European Union). Essentially, there are four broad principles:

  • transparency: requiring appropriate publicity that is formally visible cross border, as well as having clearly described and easily understood processes;
  • fairness: treating all parties equally;
  • mutual recognition: acceptance of comparable standards, qualifications, etc., from other EU member states; and,
  • proportionality: the process and reactions to issues should be necessary and appropriate to the nature and scale of the contract.

In addition, public contracts that exceed the EU value thresholds must comply with these principles in the manner set out in various EU directives and as implemented in Ireland by the Public Sector Contract regulations. There are international obligations, which are satisfied by complying with the EU rules and appropriately completing the contract notice.

There is a common and mistakenly held view that if a project is valued below the relevant EU threshold a contracting authority is free from the EU requirements. This is incorrect. The same principles apply but in a proportionate manner.

There are also national policies, procedures, circulars, etc., issued by government departments, which must be followed.

Plan the procurement
Rushed procurements frequently end up in difficulty. Consider, for example:

  • strategy: have a clear strategy, know what the real requirement is, and ensure that the option chosen is the “best” and most appropriate;
  • value and affordability: is the proposal likely to deliver value for money and is it affordable?;
  • scope and flexibility: consider what might change and ensure that your procurement allows for current and possible future requirements. The answer to the question “Can I add?” is frequently “no” because nobody thought of such a possibility at the outset; and,
  • timing: be realistic regarding timescales. Slippage of time may well be grounds for a challenge.

Adequate publicity
Err on the side of too much publicity rather than too little. The publicity requirements for major contracts are generally well known but the European Commission has drawn attention to the need for appropriate advertising on low value and partially exempt (from EU procedures) contracts. No clear direction is given as to what constitutes appropriate advertising for these categories, but you should consider using non-mandatory Official Journal of the European Union (OJEU) notices where there may be cross-border interest.

Get the content of the advertisement right
Put sufficient thought into the advertisement. Poor drafting was highlighted in a Court of Justice decision in 2010 (Case C-423/07, Commission v Kingdom of Spain) where the Court held that additional works were carried out, which were not envisaged by the contract notice in the OJEU.

If necessary, use the provision for renewals in the contract notice to cover possible additions.

Distinguish between ‘selection’ and ‘award’ processes
These two processes are governed by different rules and must be kept separate.

  •  Selection criteria

These assess a candidate or bidder’s ability to perform the contract. The criteria are limited to those set out in the regulations. They can be set as minimum standards (pass/fail) and optionally, where the number of bidders is to be limited, with a fair and transparent mechanism for shortlisting.

  • Award criteria

These must be linked to the subject matter of the contract and must be appropriate for the award stage, whether this is decided on the basis of lowest priced or most economically advantageous tender. Detailed award criteria, sub-criteria, weightings and, if applicable, marking methodologies that could affect the evaluation, must be provided.

Ensure that the selection and award criteria are clear, relevant and proportionate

  • All criteria must be clear and easily understood in a manner that allows all reasonably well-informed and normally diligent bidders to interpret them in the same way. For example, an award criterion entitled ‘execution methodology’ is probably too vague and would need further explanation;
  • the criteria must be relevant and proportionate to the subject matter of the contract (UK case – Traffic Signs & Equipment Ltd v Department for Regional Development); and,
  • the public sector regulations give sample award criteria that are neither mandatory nor exhaustive. The criteria must, however, be set in a manner that genuinely assesses or provides a means for assessing either the lowest price or the most economically advantageous tender. The Henry Bros (Magherafelt) Ltd and Others v Department of Education for Northern Ireland case highlighted the need for genuine price competition.

Give candidates and bidders complete information about the criteria to be used and the evaluation methodology

  • Criteria, sub-criteria and weightings must be set out in the contract notice or tender documents. The relative weighting of each award criterion must be given unless it is impossible to do so for demonstrable reasons, in which case this must be stated and the criteria listed in descending order of importance; and,
  • always respect the transparency requirement, e.g., if there are any marking rules, formulae, etc., these must also be stated if they could affect the outcome.

Headings that act as evidence for the performance of a criterion or sub-criterion do not have to be disclosed (McLauglin and Harvey v. Dept of Finance [2008] NIQB 91).

Keep matters in proportion
The principle of proportionality is well established in EU law and requires that any measure chosen should be both necessary and appropriate in the light of the objectives sought.

Avoid discriminatory technical, economic or financial specifications
These will be considered as decisions taken unlawfully and can be set aside by the court. Particular attention should be paid to the avoidance of the use of trade names in technical specifications, which is prohibited except in very limited circumstances.

Avoid illegal direct contract awards
Most practitioners would contend that they would never countenance an illegal direct award. But think again! Some examples of illegal direct contract awards are:

  • Material contract variations

Most standard contract forms permit variations to the scope of the original contract, but that does not mean that such changes are not material contract variations requiring a new procurement. The Pressetext case (Pressetext Nachrichtenagentur GmbH v Austria, Case C-454/06) established principles as to what constitutes a material change to a contract. These are:
– introducing changes that would have allowed for the admission of new bidders or the acceptance of an unsuccessful bid from the initial competition;
– considerably extending the original scope in a manner not initially covered; and,
– changes in the economic balance in favour of the provider/contractor.

  • Exempting a contract from normal procedures without permissible cause

Contracts may, in very limited circumstances, be exempt from the regulations (e.g., secret contracts). There are strict and narrowly interpreted rules that justify such exemptions.

  • Using the negotiated procedure without prior publicity

A contracting authority may, in very limited circumstances, negotiate a contract with a single bidder. If challenged, this exemption will be interpreted very narrowly.

  • Failure to aggregate lots or contracts

It is not permitted to break up a project with a view to bringing parts under the applicable EU threshold in order to avoid full compliance with the regulations.

  • Changing the procurement requirements

If a contracting authority changes their requirements, it may, depending on the extent, invalidate the procurement. Examples of change are altering conditions, scope or values.

  • Land and fixed assets

The acquisition or rental of land, existing buildings or other immovable property or associated rights is exempted from normal public procurement rules. However, if a contracting authority specifies particular requirements to the vendor, it will normally become a public contract and be subject to public procurement rules.

  • Developer regeneration proposals

These are complex and not all are subject to public procurement rules. Where a local authority imposes specific planning requirements it is likely that public procurement rules will apply.

  • Inadequate notification letters

The new review regulations formalised the notification process and mandatory standstill period before a contract may be awarded. The origins of this requirement go back to the Alcatel case (C-81/98). The underlying principle is that unsuccessful candidates and bidders must be given the relevant information as to why their application was rejected or tender is unsuccessful, to enable them to decide whether (and to be allowed sufficient time) to seek an effective review. This requirement is a principle in EU Directive 2007/66/EC that must be satisfied irrespective of any suggested mechanism for providing information contained in the regulations. The notification is invalid, if:
– the level of information is inadequate; or,
– the standstill period, if required, is less than stated in the regulations, which are 14 days if sent electronically and 16 days by other means, the first day being the day after the notification issued.

In restricted, negotiated and competitive dialogue procedures, it is advisable to issue the required notification to rejected candidates or those eliminated from dialogue as soon as possible, as this starts the clock on the period for challenges and thereby reduces the number of potential challenges that could occur at the later contract award stage.

  • Awarding a contract before the end of the standstill period

Not all contracts require a standstill period, e.g., contracts that do not require prior publication of a contract notice in the OJEU. But where a standstill period is required, the award of a contract before the standstill expiry is illegal.

In summary

  • Be open and transparent – advertise your intentions and the results to allow eligible persons to know about the contract and how you are going to procure it;
  • be objective and ensure equal treatment – allow all candidates and bidders a fair and equal opportunity to win the contract;
  • follow the rules; and,
  • be consistent – do what you said you would do.

Cutting the red tape

The European Commission has carried out a consultation on modernisation of the rules and systems of public procurement. The consultation period ended on April 18, 2011, so if you haven’t had your say it’s too late!

The Green Paper dated January 27, 2011, addresses modernisation of the EU public procurement policy. ‘Towards a More Efficient European Procurement Market’ has identified the following key areas for possible reform:

  • simplifying current procedures, especially for small local and regional governments;
  • cutting red tape, in particular for small to medium-sized businesses;
  • making it easier to bid for public contracts across borders;
  • determining when contracts between public authorities should be exempted from EU public procurement rules;
  • modifying the rules to achieve other policy objectives such as promotion of innovation, or environmental or social goals;
  • customising rules for the procurement of services of particular social significance;
  • adding stricter rules or better safeguards to prevent favouritism, corruption or conflicts of interest;
  • avoiding measures that lead to dominant suppliers, bid rigging or market sharing between bidders; and,
  • improving EU companies’ access to public procurement markets outside the EU.

Let’s hope that aspirations to simplify procedures and cut red tape are delivered.

Terry Woulfe-FlanaganTerence Woulfe-Flanagan MSCSI MRICS
Terence is a Senior Procurement Advisor with Bruce Shaw.