Bringing a challenge

A contracting authority’s failure to follow the Public Contracts Regulations 2006 gives the opportunity to an economic operator to start proceedings in the High Court. To be successful the economic operator needs to show that the breach of the Regulations made it suffer (or risk suffering) loss or damage as a result. The most obvious example being loss of profit from the public contract due to an irregularity in the procedure.

The remedies that a court can award will depend upon what stage the proceedings are at when the challenge is brought. For all remedies, aside from ineffectiveness, the time limit for bringing a claim is now three months beginning when the economic operator knows or ought to know of the breach.

Automatic suspension

Once proceedings are issued and served on the contracting authority, the procurement process is automatically suspended. This automatic suspension prevents the contracting authority from taking any steps to further the procurement process or from entering into the contract. This gives the economic operator a chance to have its complaint looked at in detail before the contract can be signed.

Defending a challenge

The contracting authority can apply to court to have the automatic suspension set aside. The first English case on this subject, Indigo Services (UK) Limited v The Colchester Institute Corporation in 2010, was successfully brought by a contracting authority, represented by Mills & Reeve. This case demonstrates that the court will use the same principles as when deciding to grant an injunction; the court tests the balance of convenience between the parties. In other words it assesses whether preventing the contracting authority from entering into the public contract would cause more harm to the contracting authority (and end users) than to the economic operator who challenged the process, and whether an award of damages would adequately compensate the economic operator instead.

Remedies

The remedies that can be sought by an economic operator are:  

  • Prevention of the contracting authority from entering into the contract.
  • Damages.
  • Declaration of ineffectiveness. Ineffectiveness

Ineffectiveness has its own rules and is a new concept in English law. It is available only where the contract has been entered into and where one of the three following grounds exists:

  1. There has been a direct contract award without the publication of a contract notice.
  2. A contract has wrongly been entered into during the standstill period or during an automatic suspension.
  3. There has been an incorrect direct award of a contract under a framework agreement or dynamic purchasing system.

The practical implications of a declaration of ineffectiveness being made by the court are that:

  • the contract will be cancelled from the date that the order is made;
  • a fine will be levied against the contracting authority, and
  • the court may order compensation to be paid between the parties.

All of this is yet to be played out in the English courts.

In some circumstances it might be worth drawing up a separate contract that sits in parallel to the public contract and which deals with the party’s obligations to each other should the public contract be held to be ineffective.