Background

Following mediation, a local authority and a private leisure services provider have settled a claim for breach of statutory duty under EU law in relation to the procurement of a services concession contract to provide leisure services worth approximately £120,000,000.

The claimant, Wealden Leisure Limited, was previously the incumbent provider of leisure services that had been procured by Mid-Sussex District Council. Following the local authority’s new procurement for renewal of the contract, a different service provider was appointed. The claimant subsequently learned that the winning tender was approximately 20% cheaper than its proposal, which it considered was abnormally low, unsustainable and non-compliant. The claimant also alleged that the local authority had permitted the appointed provider to make significant changes to its pricing submission after the final tenders were opened.

In seeking to challenge the legality of the local authority’s decisions in this context, the claimant issued a claim against the local authority in the High Court alleging that it had breached its obligations under Article 56 of the Treaty on the Functioning of the European Union (the “Treaty”) which constituted a breach of statutory duty by virtue of section 2 of the European Communities Act 1972 (the “Act”).

During the proceedings, to enable the Court to assess whether the local authority had complied with its obligation under Article 56 of the Treaty, an order was made for the authority to provide early specific disclosure of the final tenders that had been submitted as part of the procurement process. In addition, the local authority agreed to disclose its evaluation documents to evidence the considerations given to the sustainability of the winning bid.

The parties subsequently negotiated a settlement of the claim during mediation before the trial. As is typically the case in relation to settlements reached during the course of mediation, the terms of the settlement agreement remain confidential.

What is a concession contract?

Concession contracts are contracts for works and/or services but the consideration for carrying out the works or providing the services involves the procurer granting the right to the concessionaire to exploit those works or services. A key characteristic of a concession contract is that it must involve the transfer to the concessionaire of the operating risk which is attached to the exploitation of those works or services (encompassing demand or supply risk or both). As noted above, the contract award at issue here related to a services concession contract.

How are services concession contracts regulated?

Services concession contracts are entirely outside the scope of the Public Contract Regulations 2015 (and were similarly outside the scope of the Public Contracts Regulations 2006 which were applicable at the time when the disputed contract award was made). However, in circumstances where there is cross-border interest in the relevant opportunity, a services concession contract award must still comply with Treaty principles, including those of transparency, equality of treatment and non-discrimination.

It should be noted that once Directive 2014/23 on the award of concession contracts is implemented into national law (as it must be by 18 April 2016), services concession contracts (as well as works concession contracts) will be regulated under the implementing legislation.

If a contract award is outside the scope of the procurement regulations on what basis can it be challenged?

It is clear from previous case law that challenges that relate to contract awards by public bodies which are partly or fully outside the scope of the implementing procurement legislation can be challenged by means of an application for judicial review (provided that the challenger can satisfy the court that it has the necessary legal standing to do so). Accordingly, the current decision is unusual in being brought as a claim for breach of statutory duty under Article 56 of the Treaty and section 2 of the Act.

Article 56 of the Treaty prohibits restrictions on the freedom to provide services within the European Union and by virtue of section 2 of the Act all rights, powers, liabilities, obligations and restrictions that arise under the Treaty are, among other things, given legal effect in the UK.

The potential benefit of issuing proceedings for breach of a statutory duty is that it provides for a much longer limitation period (six years from the time of the breach). This compares favourably with the limitation period for the purposes of an application for judicial review in relation to contract awards which are outside the scope of the procurement regulations (which is normally three months from the time of the breach).

In addition, it would normally be much easier for a claimant to seek disclosure in the context of proceedings for breach of a statutory duty than in the context of an application for judicial review.

Why is this case important?

Although the case settled before the main trial, and therefore we do not have a court decision, it is still important for the following reasons. First, it provides further support for the view that a claim for breach of statutory duty is possible in relation to a contract award by a public body which falls outside the scope of the procurement regulations.

Although the remedy for beach of statutory duty is limited to damages (so that the contract award decision itself cannot be set aside, as it can under judicial review proceedings), it does mean that the “risk period” for contracting authorities is potentially much longer given the much lengthier limitation period for bringing such a claim.

From the perspective of a potential challenger this means that even if they might have missed the much narrower window for challenging a contract award decision which is outside the scope of the procurement regulations by means of a judicial review they might still have recourse to a remedy by bringing a claim for breach of statutory duty.

Indeed, it might be that a potential challenger would prefer a statutory duty breach claim if they are more interested in seeking damages (which are not normally available under judicial review) or simply in view of the fact that it would be easier for a challenger to seek disclosure of relevant information concerning the tender process in the context of such a claim.

Separately, it has been suggested that even in respect of procurements that fall within the scope of the procurement regulations, an unsuccessful bidder may also be able to bring a claim for breach of statutory duty as an alternative or in parallel to a claim for breach of the procurement regulations. However, this is likely to be far more contentious as the procurement regulations provide for specific remedies, including the award of damages, within a prescribed limitation period which is normally 30 days from actual or constructive knowledge of the alleged breach. Accordingly, such an approach might be harder still for the courts to sanction.