2011: A Challenging Year for Procurement?
All of the hangovers from the Christmas and New Year festivities are finally clearing and we are now waking to the perennial predictions for the forthcoming year.
With budgetary belts being increasingly tightened, many local authorities will be wondering just what 2011 holds for their planned procurement programme and I am going to make my own prediction of; challenges to be followed by, yet more challenges.
The Remedies Directive enjoyed its first birthday on 20 December 2010 and we are now starting to see its application to the procurement exercises commenced since its introduction the previous year.
Two recent cases are worthy of mention. In the first, the court was asked to lift the automatic suspension of an award of contract made possible by the introduction of the remedies directive. The case was between Indigo Services (UK) Limited v The Colchester Institute Corporation [2010] EWHC 3237 (QB) where David Donaldson QC, sitting as a Deputy High Court Judge considered an application by Colchester to lift an automatic suspension that barred them from awarding a contract to the successful bidder for the provision of cleaning services, following a EU procurement exercise.
Phillip Moser of Monckton Chambers was instructed by Mills and Reeve acting for Colchester and very informative case summaries can be found on their respective websites; http://mrprocurement.com/blog/?entry=35 ; http://www.monckton.com/docs/general/IndigovColchester.pdf.
Essentially, the Public Contracts (Amendment) Regulations 2009 amends regulation 47H and 47 G of the Public Contracts Regulations 2006 so that the award of a contract to a successful tenderer following a EU procurement exercise must be automatically suspended where a challenge is brought during the "standstill period". Indigo issued a claim on the last day of the standstill period and that was all they had to do in order for the award of the contract to be automatically suspended.
Colchester applied for the suspension to be lifted and this was granted with the Deputy High Court Judge relying upon the old, tried and tested application of the American Cyanamid principles. A little disingenuous, perhaps, but there is nothing wrong with tried and tested.
Colchester was closely followed by the case of Exel Europe Limited v University Hospitals Coventry and Warwickshire NHS Trust [2010] EWCH 3332 (TCC).
Although dealing with materially different facts, Exel also considered the same provisions of the Public Contracts Regulations as amended by the 2009 Regulations. Mr Justice Akenhead reviewed the principles of American Cyanamid in the light of the amended regulations, finding that the principles were positively consistent with the Remedies Directive.
That both public bodies were successful in their application to have the automatic suspension lifted must be a welcome relief for all public bodies. However, I would be inclined to keep the champagne on ice a while longer.
There was certainly a sharp intake of collective breath within the public sector when it became clear how the directive was to be implemented and we began to analyse exactly what that would mean for public sector procurement. The prospect of a contract being declared ineffective or the automatic suspension of an award of contract to a successful bidder simply by the issue of a claim during the standstill period was pretty heady stuff.
Are we to believe then, in the words of Mr Justice Akenhead, that what the regulations mean is that the courts should go about the Cyanamid exercise in the way in which courts in this country have done for many years?
I cannot think of a situation where, at the end of an arduous procurement exercise with the procuring body about to award the contract to their successful bidder, the balance of convenience and prejudicial impact tests would not cry out for the injunction or suspension to be lifted. After all, isn't that the purpose of any procurement exercise? The current contract is drawing to a close and if we are prevented from awarding the new contract we will not be able to continue to provide the services. Maybe, it will be the strength of the aggrieved bidders' arguments or the adequacy of damages that will determine future applications.
The regulations were implemented to make it easier for aggrieved bidders to challenge the procurement and award of contract process. It remains to be seen whether the tried and tested principles of American Cyanamid will continue to be an effective riposte.
One thing we can be certain of, however, is that these two cases are unlikely to be seen as much of a deterrent for aggrieved bidders and that challenges will continue apace. The regulations themselves, together with the ongoing financial climate will see to that. Throw into the mix the recently introduced requirements for public bodies to publicise details of their spending above specified levels and it is easy to see that the opportunity for more scrutiny opens up the possibility for even more challenges. Even away from strictly regulated procurement exercises we are seeing a growing trend of unsuccessful bidders who are not only willing but positively determined to challenge the award of relatively small value contracts following "Best Value" selection.
It will be a while longer before the full effects of the remedies regulations are known. In the meantime, the possibility of a challenge to your procurement exercises should remain on red alert for your risk register throughout the exercise. I would even go so far as to advise my public sector clients that they should factor into the overall costs, the potential costs of dealing with such a challenge and the attendant consequences.
Allan J. Donovan 2011
Allandon Services Limited
