On December 20, 2007, the European Parliament and Council of Ministers published a longawaited directive to enhance remedies available to disappointed bidders in public tenders conducted by any of the 27 members of the European Union (2007/66/EC) (the “New Directive”). This directive is designed to make existing remedies for violations of competitive procurement procedures more viable. It may lead to a greater number of challenges to tendering procedures and award decisions. Its champions hope that it will cause all EU public authorities to adhere more consistently and completely to the principles of transparency and equal treatment embodied in the several EU directives on public procurement.
The New Directive supplements and amends pre-existing directives on procurement remedies. The original remedies directives date from 1989 as to supply contracts (89/665/EEC), and 1992 as to utilities (92/13/EEC). The current versions (the “Remedies Directives”) resulted from updates adopted in 2004: Directive 2004/18/EC, applicable to contracts for public works, supplies, and services, and Directive 2004/17/EC, applicable to contracts in the water, energy, transport, and postal sectors. Those directives provide means by which participants in public tenders (“economic operators”) could seek to enforce European law on public procurement by challenging the actions of public authorities. Their cornerstone is the requirement that each EU Member State establish a means of legal redress before a court or administrative tribunal – similar in function to the “bid protest” which has long been a fixture of American procurement law. This represented a watershed in European procurement law. However, critics have since complained that the procedures too often have been ineffective as a means to change the course of a procurement, relegating disappointed tenderers to Pyrrhic victories rather than to a renewed chance to win a contract. In a number of countries, authorities were able to execute contracts awarded without observance of required competitive procedures, before alternate suppliers could mount a legal challenge. In many countries, the contract could not be set aside after its execution, so the challenger at most could get an award of damages.
The New Directive alters that situation by requiring a “standstill” period of 10 calendar days after tenderers are given notice of the award decision, including a summary of reasons. This will enable a disappointed tenderer to initiate a challenge in time for the court or administrative tribunal to preserve the status quo by forbidding execution of a contract pending legal review. In cases of “urgency,” a Member State may limit the initial standstill to seven calendar days; however, this period is extended by an additional three days if a company notifies the procuring authority within the initial seven days of its intent to protest. To ensure that potential challengers can consider their options during the standstill period, the deadline for requesting legal review cannot be less than 10 days after notice of award. In cases of “extreme urgency,” as defined by the Remedies Directives, no standstill period applies.
In order to permit action within these tight timeframes, contracting and review authorities are required to accept notice of review by fax or electronic medium (e-mail).
Member State procedures may require companies to bring their complaints first to the procuring authority, before seeking review by the independent tribunal required by the Remedies Directives. In the event the procuring authority rejects the protest, however, there is an additional standstill period of five working days after the authority issues its decision. During that period, the aggrieved company may initiate review by the independent tribunal.
The most egregious type of procurement violation is that in which the authority negotiates with a single company and makes an award (in EU parlance, a “direct” award; in American usage, a “solesource” award), under circumstances in which the procurement directives mandate a competitive procedure. The European Court of Justice has referred to such illegal direct awards as “the most serious breach of Community law in the field of public procurement” (Stadt Halle, case C-26/03). Procuring authorities must publish notice of direct awards, which must include the legal rationale for failing to use competitive procedures. Economic operators have a minimum of 10 calendar days thereafter to seek legal review. The direct award decision cannot have “contractual” effect until that standstill period expires. The New Directive requires that the review tribunal have the power to declare illegally awarded direct contracts “ineffective,” and to require a proper tendering procedure. The review tribunal may allow such contracts to remain in force notwithstanding the protest only if there are “certain overriding reasons based on a general interest of a non-economic nature.” Such reasons might include procurements to meet emergency requirements, for example. If an improper award is allowed to stand for such overriding reasons, alternate penalties must be imposed on the offending authority. These sanctions must be “effective, proportionate and deterrent.” They could include a fine on the authority and/or shortening of the term of the improperly awarded contract.
Member States have until December 20, 2009, to revise their laws and regulations to implement the New Directive.
The changes made by the New Directive are welcome additions, which ought to increase the rate of compliance with transparent, competitive procurement procedures and dispel much of the cynicism that inevitably arises among market competitors when authorities can easily avoid consequences for skirting procurement standards. While the new standards are an improvement, companies must bear in mind that the 10-day standstill period is very short. They must be prepared to act very quickly to preserve their legal rights if an award is made to a competitor under circumstances suggesting a possible violation of procurement procedures. Preparation may include company-internal and/or external legal consultation on potential issues during, or even at the inception of, a procurement. In addition to facilitating a possible post-award protest, early analysis may be essential as to other issues, such as unduly restrictive specifications, which may be ripe for challenge well before award.