The recent case of Italian Interior Ministry v Fastweb SpA (Case C-19/13) highlights the limited protection that the VEAT notice route can offer to contracting authorities wishing to make direct awards without following an OJEU process. A grey area remains around whether the protection of a VEAT notice will be available where the contracting authority genuinely, but mistakenly, considers it was entitled to award the contract without notice. It shows that the safe harbour will only be 'safe' to the extent that the legal justification for the direct award is in itself sound and ready to stand up to the increased scrutiny that the publication of the VEAT notice may well invite. In short, it does offer a safe harbour, but only where the waters are relatively calm already. If the legal justification is not robust, the use of the VEAT route may well create more problems than it solves; it should not be used as a port in a storm.

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In legal-speak, the phrase “safe harbour” has a particular meaning; it is a provision of a statute or a regulation specifying that certain conduct is expressly deemed not to offend against a given rule.

A good example of a safe harbour is found in the Public Contracts Regulations 2006 (the ‘Regulations’). The Regulations allow claimants to apply to the court for a “declaration of ineffectiveness” of a public contract, in circumstances where that public contract was directly awarded without any OJEU notice. This is to protect the market against the awarding of public contracts without transparency and competition, one of the principal ills that procurement law is designed to prevent.

Regulation 47K provides a ‘safe harbour’ within which contracting authorities may take shelter from this kind of claim. To qualify, a contracting authority must:

  • “consider” that it was entitled to award the contract without a notice; and
  • publish a “voluntary ex-ante transparency notice” indicating that it intends to sign the contract (a ‘VEAT notice’); and
  • observe a standstill period.

If these conditions are satisfied a claimant will not be able to claim a declaration of ineffectiveness on the basis that an OJEU notice was not published, the legislators taking the view that the VEAT notice answers the requirement for transparency and the standstill period the requirement for the opportunity for scrutiny and review.

The Regulations do not elaborate further on the “consideration” that must be given in order to satisfy the first condition. It seems reasonably clear that if the contracting authority actually knows that an OJEU notice is required but instead goes down the VEAT notice route, then the test in the first condition will be failed as the contracting authority could not be said to have considered it was entitled to award the contract directly without a notice. However, will the test also be failed where the contracting authority does in good faith consider it is entitled to do so, but is mistaken?

The Regulations specify the content and form of the VEAT notice; it must amongst other things include a justification of the decision to award the contract without prior publication of an OJEU notice. However, the Regulations do not of themselves impose an obligation on the contracting authority to act in good faith, and they state neither how robust this justification must be, nor the consequences for this safe harbour if the justification turns out to be insufficient or wrong. And it was these grey areas that the European Court of Justice had to look at in this case (while this was an Italian case, the Italian regulations are of course derived from the same Remedies Directive as our Regulations).

The facts of the case were simple – the Ministry entered into a contract with a supplier and, on its expiry, renewed the contract using the negotiated procedure without a notice route (on the grounds that for technical reasons or due to exclusive rights only the current supplier could perform the contract). It published a VEAT notice containing this justification, and held a standstill period. Another supplier, Fastweb (the claimant in the case) brought an action in the Italian court, which decided that the conditions for using the negotiated procedure without notice had not been met and that the Ministry had relied on this route due to expediency rather than for any genuine technical reasons. However, said the Italian court, it was not permitted to issue a declaration of ineffectiveness as a remedy, because the Ministry had issued a VEAT notice and held a standstill period. Fastweb countered that the VEAT notice safe harbour route merely gave the court a discretion or option not to declare ineffectiveness, after weighing up the general and individual interests involved, and that, depending on the outcome of that balancing act, a declaration of ineffectiveness could still be made. The Italian court referred the case to the European Court for guidance on these points.

The European Court decided that:

  • if the three conditions of the VEAT notice route were compliantly followed, then the national court must allow the safe harbour to operate and could not choose to impose a declaration of ineffectiveness in any event; the safe harbour could not be treated as optional where all the conditions were met;
  • it was for the national court to determine on the facts whether the conditions had all been met, including the condition that the contracting authority “considered” that it had been entitled to award the contract directly without a notice;
  • the national courts must as part of their role as review body scrutinize the justifications to ensure that the contracting authority had acted “diligently” and that the justification used was valid, particularly as the “negotiated without notice” route is a derogation from the procurement rules generally and as such is to be strictly and narrowly interpreted. It is for the national court to decide whether the justification used in the VEAT notice stands up and the contracting authority can therefore be said to have “considered” itself entitled to make a direct award. The court stopped short of ruling that the protection of a VEAT notice should always be available in the event of a genuine but mistaken belief that a direct award was permitted; instead it will be for the national court to assess how “diligent” the contracting authority was in formulating that genuine, if mistaken, belief.

What does seem clear is that the protection of a VEAT notice route will not be available where the contracting authority acts in bad faith, in full knowledge that a direct award of the contract is not permitted. Potentially, the protection will also be unavailable where the contracting authority lacks proper diligence in considering whether a direct award is permitted, regardless of whether it acts in good faith or not.