Just as we are getting used to the 2006 amendments to the public procurement rules, the rules relating to procurement challenges and remedies are about to change. The new Remedies Directive, which was adopted by Europe in January 2008, is the long-awaited final piece in the updating of the public procurement rules. The UK has 24 months to implement the Remedies Directive and it is expected to become law in the UK by December 2009.
THE STANDSTILL PERIOD
The new rules will formally introduce the 10 day standstill period (the Alcatel period) which public authorities are required to allow between a contract award decision and signature of the contract. The intention is to give unsuccessful bidders time to examine the award decision and decide whether to launch a challenge at a point when the decision can still be corrected, ie before contract signature.
The standstill requirement has been law in the UK for a couple of years now and will be familiar to most public authorities and bidders who have been involved in a recent UK public procurement process. The new rules will not substantially impact on UK procedures in this area, but they will harmonise these rules across other EU member states.
THE SANCTION OF INEFFECTIVENESS
The new rules will also make significant changes to remedies for breaches of the public procurement rules. The new Directive introduces a new sanction of “ineffectiveness” for the most serious breaches of public procurement law. These are:
- contracts awarded without publication of an OJEU notice where an OJEU procedure should have been followed or without a call for competition in the context of utilities;
- failure to apply the standstill period combined with a substantive breach of the public procurement rules, which has affected the chances of a bidder winning the contract; and
- large contracts awarded under a framework agreement or a dynamic purchasing system where there has been a substantive breach of the public procurement rules
The consequences of an “ineffectiveness” ruling will depend on national law, but (under the Directive) must be either:
- retrospective cancellation of all contractual obligations (ie set aside of a contract already entered into); or
- cancellation of contractual obligations which are still to be performed combined with the imposition of fines or the shortening of the duration of the contract.
TIMESCALES FOR BRINGING A CHALLENGE
An application for ineffectiveness will need to be filed within 30 days of the publication of the contract award notice. If no such notice has been published, an applicant has up to 6 months after signature of the contract to file a complaint. The current 3 month period for other breaches will remain in place.
WHAT WILL THIS MEAN FOR UK PUBLIC PROCUREMENT?
At present, there are two types of remedies available in the UK for a breach of the procurement rules. The first is set aside of the decision which, crucially, can only be applied before a contract has been entered into. The second is damages, which can be applied before and/or after a contract has been entered into. This means that bidders must act quickly to obtain an interim injunction to prevent a contract being signed in order to allow time for a full challenge to be brought. Once the contract has been signed, the only remedy available to an aggrieved bidder is damages.
The new rules will mean that contracts will no longer be “safe” once they have been signed. There will be a period of risk (30 days where there has been a contract award notice or 6 months where there is no contract award notice) during which the contract could be set aside. This is a significant risk for public authorities, as set aside would leave them without a contractor and having to start afresh with a new procurement process. Contractors will risk losing a contract they thought they had won without any means of recovering sunk bid costs and/or projected profit.
These potentially serious consequences are likely to focus the attention of public authorities and bidders on compliance with public procurement law. Even though the new rules won’t come into force until next year, projects which are being considered now but which won’t conclude for another 18-24 months will be affected.