A new public procurement Remedies Directive was issued by the Council and the European Parliament on 15 November 2007 and has been published in the Official Journal on 20 December 2007. Member States have 24 months to implement the new Directive into national law.
The new Directive amends the existing Remedies Directives 89/665/EEC and 92/13/EEC aiming to improve the effectiveness of the review procedures and remedies available to disappointed bidders in the awarding of public contracts. In particular, the Directive requires the introduction of a minimum period that allows for an effective review between the decision to award a contract and the conclusion of the contract in question. In addition, the Directive seeks to combat the problem of illegal direct award of contracts.
The new Directive is expected to enhance bidders’ confidence in the procedures for awarding public contracts and to improve the effective operation of the EU public procurement regime. However, problems relating to the length and timing of the review period, as well as contracting authorities’ increased costs of compliance, may compromise the gains expected from the new Remedies Directive.
Remedies in public procurement
Under the current Remedies Directives, EU Member States (MS) must ensure that effective and rapid review procedures are available to any person having, or having had, an interest in obtaining a public contract and having been, or likely to be, injured by an alleged infringement of the substantive Public Procurement Directives1. The available remedies include interim measures, the setting aside of unlawful decisions and the award of damages.
The current Remedies Directives require MS to ensure a minimum level of protection to bidders but the extent and nature of the procedures available in the different MS have varied considerably. This variation has resulted in uncertainty and extra costs for bidders, thus hindering, according to the Commission, free operation of this important sector of the internal market.
Motivated by European Court of Justice (ECJ) case law2 and a series of consultations, the European Commission has identified two main weaknesses in the current regime.
Firstly, under the current Remedies Directives, there is no review period after the contract has been awarded in which bidders are able to question the award decision and seek interim measures or the setting aside of the award decision. In most MS, after the conclusion of the contract redress is limited to damages which is considered a difficult process, often resulting in little reward. This has led in many cases to a “race to signature” whereby the contracting authority proceeds very quickly to the signing of the contract in order to avoid the consequences of a disputed award decision.
Secondly, the current framework does not deal in an effective way with the problem of the illegal direct award of contracts which was described by the ECJ3 as the most serious breach of Community law in the field of public procurement on the part of a contracting authority. Illegal direct award refers to cases where a contracting authority awards a contract without prior advertisement where this is required.
The mechanism of the new Directive
A significant feature of the Directive is the introduction of a compulsory “standstill period” – a period requiring a minimum of 10 calendar days to elapse before a contracting authority is permitted to conclude a contract with the preferred bidder. The standstill period applies to all contracts falling within the scope of the substantive Directives except to contracts that do not require prior publication of a contract notice in the OJEU (eg extreme urgency) or in cases where only one bidder has submitted a bid or remained in the tendering procedure, thus no other person has an interest in receiving a notification and benefiting from the standstill period. In the case of framework agreements and dynamic purchasing systems, MS may choose not to introduce a standstill period if they provide for ineffectiveness of the contract as a possible remedy.
In practice, a minimum standstill period has already been introduced in some of the MS (eg in the UK, Germany, Denmark, the Netherlands, Italy and Belgium). However, the new Directive additionally requires that a submission of an application for review during the standstill period should result in an automatic suspension of the possibility to conclude the contract pending resolution of the challenge. In addition, if the standstill period has not been respected, a signed contract should be set aside and rendered “ineffective” under certain conditions and provided there are no other overriding reasons. It is left for national law to decide the consequences of such ineffectiveness, which could include retroactive cancellation of all contractual obligations (ex tunc) or only the cancellation of obligations not yet performed (ex nunc).
The new Directive also requires that national review bodies have the power to declare an illegal direct award of a contract ineffective. This requirement is qualified by a safeharbour provision under which ineffectiveness would not apply to illegal direct awards if: (a) the contracting authority believes it has acted lawfully when deciding not to publish a Contract Notice, (b) it has published a notice for voluntary ex-ante transparency expressing its intention to conclude the contract, and (c) it has not concluded the contract before the expiry of 10 calendar days from the publication of this notice. In such cases, alternative dissuasive penalties should be available (subject to derogations).
According to the new Directive bidders have up to 6 months from the conclusion of the contract to launch a complaint that could potentially lead a review body to declare the signed contract ineffective. Contracting authorities have the possibility to reduce this period to 30 days if they voluntarily publish a Contract Award Notice, making potential bidders aware of the awarded contract and explaining the relevant reasons why they consider it permissible to award the contract without prior publication.
Lastly, the Directive relaxes the conditions under which the Commission may utilize the “corrective mechanism” and it removes the hitherto hardly-used, “attestation system” and “conciliation mechanism”.
The new Remedies Directive will no doubt have a positive impact on bidders’ confidence in the procedures for the award of public contracts and lead to increased compliance with the rules. However, a number of questions still remain as to whether the mechanism used by the Directive is best suited to achieve the goals envisaged by it.
Perhaps most importantly is the issue of whether a 10-day standstill period strikes the right balance between providing bidders with sufficient time to analyse an award and submit it for review whilst having to maintain the economic imperatives of an efficient procurement process. Bidders from MS different to that of the contracting authority may feel that 10 days is insufficient considering their lack of familiarity with the review process of that particular MS. Moreover, 10 calendar days could, practically, amount to only three working days if public holidays and weekends fall in a particular way.
Another issue may arise in more complex public procurement procedures such as those used for property, construction and regeneration projects. This is because the application of the public procurement rules to some of these contractual arrangements are often unclear and do not provide for sufficient legal certainty. Being aware of the fact that the contract entered into might be rendered ineffective as a result of a challenge, both parties may face higher costs of precaution.
From the point of view of a contracting authority, an increase in the probability that award decisions will be contested (and brought to an end) will increase the perceived level of risk. Erring on the side of caution would be a natural response, but this of course has a price in terms of (unnecessary) compliance costs, eg lengthy procurement procedures and the resulting delays in delivery. Bidders, on the other hand, may find it hard to raise funds from third parties if the latter are concerned that the contract may be brought to an end after signature. Monitoring and duediligence on behalf of lenders to ensure that this is not likely to happen and if so, making arrangement for securing debt, would also have their costs.
Finally, the Directive has to be read together with Case C-503/04 Commission v Germany. In this decision the ECJ held that limitations of the remedies available to bidders under national law do not preclude the Court from ordering rescission of the contract if the contract was awarded in breach of Community law. Whether this decision would be restricted only to cases brought by the Commission before the ECJ or would have further implications in national courts remains left to be seen.