Title

Many local authorities are considering how contracts with the private sector which were procured in more affluent times can be restructured or even extended to make them cheaper. But they need to be careful of legal challenges by disgruntled contractors, warn Helen Randall and Mike Mousdale. Following the spending review and in anticipation of low settlements next month, many local authorities are looking carefully at procurement. Many are cancelling the procurement of contracts they can no longer afford and others are looking at how better procurement could save money for many contracting authorities – if procurement is not done well it can be very costly, either because what is purchased is not fit for purpose, procurement costs are out of control or because the procurement is successfully challenged, resulting in damages, legal fees and the cost of re-procurement. Until relatively recently, procurement challenges were a rarity in the United Kingdom. While there are many reasons for this, the principal obstacle has been that of reputational risk for the contractor bringing the challenge. Perceived wisdom had it that biting the hand that feeds was commercial suicide. However, it would be a very complacent local authority today which did not recognise the very real risk of procurement challenge arising. The challenge culture is here and it is likely to stay. So what has brought about this change? It would be easy simply to blame the current economic crisis. While it is undoubtedly true that the competition for public contracts has become tougher and that the impact of a failure in the tendering exercise is more acutely felt, deeper analysis shows that there is far more to it. There are other commercial and legal factors at play. At the heart of the commercial reasons why a contractor might bring a challenge is the concept of market exclusion. Current trends in procurement may have the effect of freezing out an unsuccessful contractor from their chosen market for many years to come. Such decisions could make or break a business in the current climate. The best example of this trend is the framework agreement. Instead of piecemeal procurement for every work, supply or service contract required by an authority, it will commonly put in place a framework for (usually) four years. The effect of this is magnified where the framework is put together on a national or regional scale by a body such as Buying Solutions or one of the purchasing consortia. Four years in the wilderness can be a very long time (probably too long) for many businesses, particularly SMEs. But frameworks are not the only way in which contractors face market exclusion. Greater collaboration in shared services and longer service contracts similarly reduce the number of available opportunities in the market. Great news for the winner, but potentially disastrous for the losers. Only recently, the European Commission censured Westminster City Council on its shared parking services partnership after an un-named parking company complained that the subsequent adding of authorities to the contract should have been re-advertised. Many local authorities are now understandably considering how contracts they procured in more affluent times can be restructured possibly, even extended to make them cheaper. While this is sensible, careful thought needs to be given to the potential procurement law consequences. In effect, if the renegotiated contract has been changed to such an extent that it is a fundamentally different animal than the one that was originally advertised and tendered then, depending on its value and the type of any services included in it, the authority may risk challenge. Increased incidence of challenge is not just a response to market conditions. There have been a number of key legal changes over recent years which have tilted the balance in favour of the challenger. First and foremost was the introduction of ‘Alcatel' standstill rules which not only prevents contracting authorities awarding contracts until expiry of the standstill period, but arms the would-be challenger with information about the award decision which may encourage it to believe that the decision is wrong. These rules were considerably beefed up in the changes introduced by the Remedies Directive at the end of 2009. Of course the Remedies Directive also introduced the new remedy of ineffectiveness for illegal direct awards, but perhaps the most important new measure introduced by those rules was that relating to automatic suspension of award procedures where a challenge is made. This is significant for an aggrieved bidder, because it means that they no longer need to seek an interim injunction to prevent the award of a contract, something which many contractors found too risky and costly to contemplate. Recently, there has also been a rash of infringement proceeding notices issued by the European Commission indicating they are receiving more complaints. All in all, the challenge environment has changed. Local authorities must now take seriously the risk of challenge and review their procurement procedures and methodologies. Authorities will be vulnerable to challenge if their approaches to selection and tender evaluation have not recently been audited and recalibrated to comply with current legislation and best practice – even the best authorities need to get to grips with and comprehensively understand what is becoming an ever more complex set of procurement rules and policies emerging from Europe. Helen Randall and Mike Mousdale are partners at Trowers & Hamlins

Title

WHITEHALL

Watch out for contract challenges

SUBSCRIBE TO CONTINUE READING