Since the ‘Alcatel’ judgment (reported previously in this newsletter), a ‘standstill’ period of 10 days has been imposed between notifying the other bidders of the outcome and actually entering into a contract with the successful bidder. This position was formalised in the Public Procurement Regulations 2006.

However, the EU has for some time been looking at the question of harmonising remedies and sweeping new changes are proposed in the new Remedies Directive. This is likely to become law, as the Remedies Directive was approved by the European Parliament in June 2007 and, subject to formal adoption by the Council, will be published in the OJEU later this year. The UK will have 24 months to implement the Directive by making new Regulations.

These changes will have a major effect on award procedures, are likely to increase both cost and the risk of challenge, and tend to undermine the current principle that awarded contracts will usually not be overturned. This in turn creates less certainty and more risk for bidders, particularly smaller businesses.

Key changes

The main features of the Remedies Directive are:

• A ‘standstill period’ of 10 calendar days (which can be reduced to seven calendar days in certain circumstances) must expire between the date of notifying the award decision and concluding the contract. In this period, disappointed bidders will have the opportunity to challenge a decision. This is broadly the same as the current position;
• However, in a major departure, the ‘standstill period’ will also apply to contracts entered into directly (above the relevant OJEU thresholds) without a formal tendering procedure – this will include ‘call-offs’ under a framework, ‘Part B’ services, concessions and negotiated procedure without competition, thus introducing another layer of detail and potential grounds for challenge;
• The authority must also publish a notice of its decision to award such ‘direct contracts’ ensuring a ‘sufficient degree of publicity’ and the standstill period will run from the date of such notice;
• If a complaint is made to the authority, the contract award must be suspended for a minimum of 5 working days from receipt of the complaint;
• If the authority fails to comply with the notice and standstill requirements, then aggrieved bidders will be able to bring an action to invalidate the contract within a limitation period which national governments may decide, but which must be at least 6 months;
• The court or other review body hearing a challenge, where it finds that the rules have been infringed, may only decide not to suspend or invalidate the contract award where there are over-riding reasons of general interest; and
• In rather chilling language, the draft Directive states "The Member States shall provide for a system of sanctions intended not to leave unpunished the conclusion of a contract in infringement [of the above rules]…". It is not yet clear what form such "punishment" might take in the UK but it could encompass, for instance, fixed financial penalties. The Office of Government Commerce will be consulting on this and other matters before implementing the new Directive.

Effects

The Commission’s reasoning behind the main amendments in the Remedies Directive is that effective procedures for seeking redress are essential to make sure that public contracts go to the companies who made the best offer. It was hoped that this confidence would further encourage business to tender for work across the EU, presumably not only EU-based businesses but also companies further afield such as the US or Asia.

However, this adds an extra layer of administrative complexity and cost for authorities. It also is likely to affect further the confidence of SMEs and other smaller businesses in tendering for public contracts, since contract award procedures will be more unwieldy and even after winning the contract, and committing resources to performing it, they may be at risk of losing it again (through no fault of their own) for up to 6 months.

The concept of ‘punishment’ (rather than redress for the actual loss caused) for administrative or civil actions is also not one which is generally seen in the common law of England and Wales, unless there are additional factors such as bad faith or serious misuse of power. This therefore marks a significant departure from established legal principles. The impact of financial penalties on public bodies which may already be struggling to balance budgets will add yet more cost and risk to the procurement process.

Authorities will need to review their award procedures in advance of this new Directive being implemented in the UK, both to ensure that they avoid falling foul of the new sanctions, and to streamline those procedures so as to minimise the cost and risk to smaller businesses.

If you require any further information about the new Remedies Directive, please contact Penri Desscan or Mererid Thomas.