The new legislation

In December 2007, the EU Institutions adopted a new Directive (2007/66/EC), which amends the existing Directives (89/665/EEC and 92/13/EEC) on improving the effectiveness of review procedures concerning the award of public contracts (the Remedies Directive).

On 20 December 2009, the Public Contracts (Amendments) Regulations 2009 (SI 2009/2992) (2009 Regulations) will come into force, implementing the Remedies Directive in England and Wales. Similar regulations, the Public Contracts and Utilities Contracts (Scotland) Amendment Regulations 2009 (SSI 2009/428), will implement the Remedies Directive in Scotland.

The aim of the 2009 Regulations is to provide more effective remedies for companies which suffer as a result of breaches of the rules on public procurement (the public procurement rules) contained in the Public Contracts Regulations 2006 (SI 2006/5) (2006 Regulations). For more information on the public procurement rules, see Practice note, Public procurement in the UK (www.practicallaw.com/5-383-9734).

This note summarises the main legislative changes under the 2009 Regulations and examines the practical implications for both contracting authorities and bidders.

Equivalent changes have been made to the Utilities Contracts Regulations 2006 (SI 2006/6) by the Utilities Contracts (Amendment) Regulations 2009 (SI 2009/3100). However, this note addresses only the 2009 Regulations.

Overview of the changes - increased risk and a shift of the burden

The 2009 Regulations target areas where potential bidders have, in the past, been frustrated in their attempts to secure an open and fair tender process. In particular, once contracts have been awarded and entered into by contracting authorities, the remedies available to unsuccessful bidders or bidders not invited to tender are limited to a damages claim under the existing regime (Regulation 47(9), the 2006 Regulations). Such claims are difficult to prove, costly to bring and extremely infrequent in the UK.

In the future, claimants will be able to challenge the contract award and the courts will be required to declare the contract ineffective (see below) in circumstances where it has not been properly tendered and no opportunity for challenge prior to contract award was given. This means that the procurement risk burden will increase, but it will also shift given that the successful contractor will also bear the risk of the contract being declared ineffective.

The 2009 Regulations will also create incentives for litigation by lowering some of the hurdles faced by litigants and increasing the range and gravity of the remedies available.

Transitional provisions: which procurements will the new rules apply to?

The 2009 Regulations do not affect any contract award procedure commenced before 20 December 2009 (Regulation 11, 2009 Regulations). This means that the new remedies will not apply to tenders (whether for a public contract, framework agreement or dynamic purchasing system):

• That have been advertised with an Official Journal of the European Union (OJEU) notice before that date.
• That have been the subject of any other form of advertisement.
• For which the contracting authority has contacted a particular economic operator in order to:
  • seek expressions of interest or offers for the contract; or
  • respond to an unsolicited expression of interest or offer to provide the contract.

(Regulation 11(2), 2009 Regulations.)

In relation to framework agreements and dynamic purchasing systems, the transitional provisions provide that any specific contracts based on a framework agreement concluded before 20 December 2009, or following a contract award procedure which was commenced before 20 December 2009, would not be subject to the ineffectiveness remedy (Regulation 11(3) and (4), 2009 Regulations).

Key changes under the new regime

The standstill period

A key stage of the tender process for any potential claimant is the standstill period (www.practicallaw.com/9-385-1366), which comes after the contracting authority announces its intention to award the contract to the successful bidder. Contracting authorities must not enter into the contract (or conclude the framework agreement) before the end of the standstill period.

Before a contract has been entered into, a wider range of remedies are available to claimants, including:

• An order setting aside a decision (for example, to award the contract).
• An order requiring the contracting authority to amend a document (for example, requiring a tender document to be reissued).

In both cases, in addition or as an alternative to a claim for damages.

The existing standstill period

Under the 2006 Regulations, the standstill debrief takes place in two phases:

• A standstill letter has to be sent to all companies which applied to be included in the tender, including the scores obtained by the recipient and the score of the successful bidder, the evaluation criteria and the name of the successful bidder. For an example of a standstill letter, see Standard document, "Alcatel" letter to be sent to unsuccessful supplier offering debrief (www.practicallaw.com/0-384-2135).
• If a debrief is requested within 48 hours (starting the day after the letter was sent) then a debrief with information on the characteristics and relative advantages of the successful tender must be provided at least three working days in advance of the end of the standstill period.

Given that the standstill period is only ten days, the 2006 Regulations make it extremely difficult for a litigant to gather the information that is needed, brief its lawyers and pursue injunctive relief before the contract was awarded. The 2009 Regulations seek to address this problem.

The new standstill period

The new provisions in the 2009 Regulations replace the two-stage process under the 2006 Regulations with a single-stage obligation to provide the relevant information to all unsuccessful bidders in the standstill letter itself, rather than only to those who request it, at a debrief meeting or in a subsequent letter during the standstill period.

This should provide unsuccessful bidders with more time before the contract award to assess whether to bring a claim.

Contracting authorities must issue an award decision notice (standstill letter) to tenderers (that is, those companies which submitted an offer) as soon as possible after the decision has been made (Regulation 32(1) and (2), 2006 Regulations (as amended by the 2009 Regulations)). This must include:

• The award criteria.
• The reasons for the decision, including the characteristics and relative advantages of the successful tender.
• The scores obtained by the recipient and the operator to be awarded the contract.
• The successful operator's name.
• A precise statement of when the standstill period is expected to end.

(Regulation 32(2), 2006 Regulations (as amended by the 2009 Regulations))

A similar notice must also be sent to candidates (that is, operators which applied to be included among the tenderers but did not submit an offer, either because they withdrew or were eliminated) (Regulation 32(1), 2006 Regulations (as amended by the 2009 Regulations)). However, the notice to candidates will not include the relative advantages of the successful tender, because the candidate will not have submitted an offer.

The new standstill rules clarify that contractors who have been eliminated or dropped out at earlier stages of the tender (for example, at pre-qualification questionnaire stage) and have already been informed of the rejection of their application and the reasons for it are not "candidates" and do not therefore need to be sent a standstill letter (Regulation 32 (1) and (2), 2006 Regulations (as amended by the 2009 Regulations)). However, where a decision is taken to exclude an applicant prior to contract award, the applicant must be notified of that decision (Regulation 29A, 2006 Regulations (as amended by the 2009 Regulations)). This reflects the existing best practice of giving a timely debrief to contractors who are eliminated at earlier stages of the tender.

Timing of standstill: the new standstill provisions clarify that the standstill period ends at midnight at the end of the tenth day after the date on which the contracting authority sends the award decision letter (by fax or email) (Regulation 32A(2), 2006 Regulations (as amended by the 2009 Regulations)).

Where the standstill letter is sent by means other than fax or email, the period ends at the latest by midnight at the end of the fifteenth day after the sending date (or earlier, if more than ten days after the date on which the last economic operator received the notice have elapsed) (Regulation 32A(3), 2006 Regulations (as amended by the 2009 Regulations)).

Carve-outs: the rules on standstill do not apply to "Part B" service contracts under the 2006 Regulations (for example, health or social care services, transport by rail and water, and legal services) (Regulation 5(2), 2006 Regulations). For more information on "Part B" service contracts, see Practice note, Part B, below threshold and other procurements outside the regulations (www.practicallaw.com/6-384-1798).

Similarly, the rules on standstill do not apply to call-off contracts (purchases made as and when required by the purchaser) made under a properly tendered framework agreement, though they do apply to the tender for the framework agreement (Regulation 32(7), 2006 Regulations). For more information on framework agreements, see Practice note, Framework agreements (www.practicallaw.com/4-384-9601).

Suspending court proceedings: the automatic injunction

A key element of the 2009 Regulations is the automatic suspension of the tender process once proceedings are started.

The existing regime: hurdles in seeking injunctions

Under the 2006 Regulations, a claimant had to obtain an interim injunction if it wished to prevent the contracting authority from entering into the contract. This was difficult in practice, as:

• The potential claimant had very little time to work out whether it had a claim and mobilise the resources needed to bring injunctive proceedings before the end of the standstill period.
• The legal test that must be satisfied in obtaining an injunction presents a high hurdle. The claimant must show not only that there is a serious issue to be tried, but also that damages would not be an adequate alternative remedy (they often are) and, further, that the balance of convenience does not favour the contracting authority entering into the contract (it often does) (American Cyanamid Co v Ethicom Ltd [1975] AC 396). In assessing the balance of convenience and exercising its general discretion, the court will take into account the possible harm to the public interest in delaying the project or services being procured while proceedings are conducted.
• The potential claimant would, in order to secure the interim injunction, have had to grant a cross-undertaking as to damages. This meant that the claimant could be liable for the additional costs incurred by the contracting authority in delaying its tender process in circumstances where the contracting authority ultimately won.

All these factors, in addition to the cost of bringing injunctive proceedings, tended to act as a disincentive to litigation. The injunction remedy was, in addition, an altruistic remedy in that it acted for the benefit of all unsuccessful bidders and there was no guarantee that the claimant itself would win the retendered contract (indeed, potential claimants tended to assume that they will not). Yet the burden, risk and cost of proceedings were all borne by the claimant.

For more information on prohibitory injunctions, Practice note, Prohibitory injunctions: an overview (www.practicallaw.com/1-205-5518).

The new regime: automatic suspension

The 2009 Regulations therefore seek to address some of these barriers to justice by introducing an automatic suspension of the contract award procedure when proceedings alleging breach of the public procurement rules are issued and served on the contracting authority. That suspension remains in force until the court brings it to an end by an interim order under the 2009 Regulations, or the proceedings are determined, discontinued or otherwise disposed of (Regulation 47G, 2006 Regulations (as amended by the 2009 Regulations)).

In deciding whether to bring to an end the automatic suspension, the court must consider whether, if the suspension were not in operation, it would be appropriate to make an interim order (Regulation 47H(2), 2006 Regulations (as amended by the 2009 Regulations)). This means that, in practice:

• The court should still apply the American Cyanamid test to assess whether or not to remove the suspension (see above).
• But, the cost of the proceedings would be borne by the contracting authority rather than the claimant, and so there should be no requirement for the claimant to grant any cross-undertaking as to damages, as it will not be seeking the order.

However, until the courts have applied the 2009 Regulations, there can be no guarantee as to what tests will be used and what costs orders will be made.

Time limits for challenge

The 2009 Regulations confirm the limitation period for bringing proceedings. Proceedings must be started promptly and, in any event, within three months beginning with the date when grounds first arose (Regulation 47D(2), 2006 Regulations (as amended by the 2009 Regulations)). This is subject to the proviso that the court may extend the time limit when it considers that there is good reason for doing so (Regulation 47D(4), 2006 Regulations (as amended by the 2009 Regulations)).

Further, the 2009 Regulations have added the rule that (where the action relates to a decision which is sent to the potential bidder by fax or email or is published), the requirement for proceedings to be started "promptly" will never require them to be brought earlier than 10 days after the day after the date on which the decision is sent and the summary of reasons for the decision is provided or the decision is published (Regulation 47D(3)(a), 2006 Regulations (as amended by the 2009 Regulations)).

On 29 October 2009, Advocate General (AG) Kokott handed down an opinion in relation to a reference for preliminary ruling from the High Court on limitation periods (Uniplex v NHS Business Services Authority, Case C-406/08). Her opinion was that the time limits for starting proceedings only begin when the potential claimant is (or should have been) aware of the grounds for the proceedings. This principle may be accommodated within the 2009 Regulations, although not expressly provided for, by the court's discretion to extend time limits where there is good reason for doing so.

However, the AG also expressed the opinion that the obligation to bring an action promptly should not be relied on by a court to dismiss an application for review which is brought within the three-month limit. Her view was that this undermined the effectiveness of the remedy. This seems to run counter to the 2009 Regulations, which clearly envisage the possibility of a claim made within the three-month period, but not promptly, being ruled out of time. Furthermore, the Remedies Directive gives EU member states discretion to impose a limitation period which is much shorter than three months (down to ten calendar days where the decision is notified by fax or email). This indicates that the UK position under the 2009 Regulations is consistent with the Directive.

The AG's opinion does not have force of law, and it will be interesting to see whether the European Court of Justice follows her view.

For more information on the AG's opinion in Uniplex, see Legal update, Advocate General's opinion on limitation periods for bringing procurement challenges (www.practicallaw.com/8-500-6210).

Ineffectiveness

Arguably the most significant legal reform brought about by the 2009 Regulations is the introduction of the new remedy of ineffectiveness, which may be sought once the contract has been entered into (Regulation 47J, 2006 Regulations (as amended by the 2009 Regulations)). This involves a declaration of ineffectiveness (a declaration) by the court, with the effect that prospective obligations under the contract are cancelled.

Under the 2006 Regulations, once the contract had been entered into it could not be set aside, leaving a claim in damages as the only available remedy. The new ineffectiveness remedy supplements the remedy of damages.

Ineffectiveness is a new concept in English law. The Remedies Directive required the remedy to be introduced, but left it to member states to decide what the consequences of a contract being considered ineffective should be (in particular, whether this would result in the retrospective cancellation of the obligations still to be performed).

The UK Government, following consultation, decided that only the prospective cancellation of obligations would be introduced into UK law.

Grounds for ineffectiveness

The grounds for ineffectiveness are:

• Where the contract has been awarded without the prior publication of an OJEU notice (www.practicallaw.com/9-385-1432) in circumstances where a contract notice was required, that is, an illegal direct award.
• Award of the contract without complying with the rules on standstill or suspension (see the standstill period and suspension pending proceedings above), such that the operator has been deprived of the possibility of starting proceedings (or pursuing them to a proper conclusion) before the contract was entered into, combined with a breach of the public procurement rules which has affected the chances of the claimant operator obtaining the contract.
• Award of call-off contracts with a value in excess of the applicable public contract threshold under a framework or dynamic purchasing system in breach of applicable requirements. For more information on the applicable thresholds, see Practice note, Part B, below threshold and other procurements outside the regulations: Sub-threshold procurements (www.practicallaw.com/6-384-1798).

(Regulation 47K, 2006 Regulations (as amended by the 2009 Regulations))

The new remedy is not discretionary: if the court is satisfied that any of the grounds for ineffectiveness apply, it must make a declaration unless a specific derogation applies (see below) (Regulation 47J(2)(a), 2006 Regulations (as amended by the 2009 Regulations)).

Derogations from ineffectiveness

The grounds for ineffectiveness are subject to certain derogations (Regulation 47K, 2006 Regulations (as amended by the 2009 Regulations)).

Specific derogations: the grounds for ineffectiveness are subject to the following specific derogations:

• No OJEU notice: the ground based on award of a contract without an OJEU Notice does not apply if:
  • the contracting authority considered the award without an OJEU notice to be permitted by the 2009 Regulations;
  • a voluntary transparency notice has been published in the OJEU expressing the contracting authority's intention to enter into the contract; and
  • the contract has not been entered into before the end of a standstill period of at least ten days, beginning with the day after the date on which the voluntary transparency notice was published.

The voluntary transparency notice must be in the form provided for by Commission Regulation 1150/2009/EC. It must contain:

• the name and contact details of the contracting authority;
• a copy of the description of the object of the contract;
• a justification of the decision to award the contract without an OJEU contract notice;
• the name and contact details of the operator to be awarded the contract; and
• other information that the contracting authority considers it useful to include.

For more information on the prescribed form of notice, see Legal update, New public procurement notices published (www.practicallaw.com/8-500-8822).

• Non-compliance with call-off rules: the ground based on non-compliance with call-off rules (for frameworks and dynamic purchasing arrangements) does not apply if the contracting authority:
  • considers that the rules on frameworks and dynamic purchasing systems have been followed;
  • has voluntarily complied with the standstill obligations (even though these are not required); and
  • did not enter into the contract before the end of the standstill period.

General interest derogation: in addition, if the court is satisfied that overriding reasons relating to a general interest require that the effects of the contract should be maintained (and these reasons have been raised as an issue by one of the parties to the litigation), it must not make the declaration (Regulation 47L, 2006 Regulations (as amended by the 2009 Regulations)).

It is unclear how the courts will apply the general interest grounds derogation from the ineffectiveness remedy. The 2009 Regulations provide that:

• The economic interest in the effectiveness of the contract may be considered as an overriding reason only in exceptional circumstances, if ineffectiveness would lead to disproportionate consequences (Regulation 47L(2), 2006 Regulations (as amended by the 2009 Regulations)).
• However, economic interests directly linked to the contract (such as the legal costs, or the costs of delay in the execution of the contract, of a new tender, or of changing the operator) cannot constitute such overriding reasons (Regulation 47L(3) and (4), 2006 Regulations (as amended by the 2009 Regulations)).

The grounds also rule out the application of the ineffectiveness remedy to "Part B" or below threshold contract tenders, as neither the standstill rules nor the OJEU notice requirements apply to these tenders.

It should also be noted that the 2009 Regulations provide that in circumstances where a declaration is made in respect of a framework agreement, it does not follow automatically that call-off contracts entered into pursuant to that framework are also ineffective (Regulation 47O(2), 2006 Regulations (as amended by the 2009 Regulations)). A separate declaration would be required in relation to each specific call-off contract, and such a declaration would need to have been applied for within the relevant time limits.

Some practical implications of ineffectiveness

First ground: it should be noted that, under the first ground, the ineffectiveness remedy could be available in circumstances where an existing contract is renewed or amended in a material way and which therefore triggers a new obligation to conduct a tender process. Such material modifications in the absence of a tender process already give rise to risks of damages claims for contracting authorities (see Pressetext Nachrichtenagentur v Republik Oesterreich (Bund), Case C-454/06). Going forward, the risks may be more significant, given the possibility of an ineffectiveness claim. For more information on Pressetext, see Legal update, ECJ ruling on variation of contracts and whether this amounts to the award of a new contract under the public procurement rules (www.practicallaw.com/2-382-2221).

Second ground: in cases under the second ground, it is not sufficient that a breach of the standstill or suspension rules has taken place. The claimant must also demonstrate that the breach deprived it of the opportunity to bring an action before the contract was entered into, and that it has affected the claimant's chances of obtaining the contract. This effectively rules out technical breaches of the rules which could have had no effect on the result of the tender procedure.

It also means the ineffectiveness remedy is less likely to be available to candidates who were eliminated at an early stage of the tender process as, provided such candidates were informed of their elimination and given reasons, they would not enjoy rights under the standstill provisions and their claims would not therefore qualify (see the new standstill period above).

Third ground: the grounds based on call-off contracts under frameworks and dynamic purchasing systems are only available if no standstill period is held before award of the call-off contract (Regulation 47K(7)(b), 2006 Regulations (as amended by the 2009 Regulations)). While this standstill is not obligatory, it might well be prudent to award a standstill before call-offs go forward in order to avoid the risk of the contract being held to be ineffective.

The consequences of ineffectiveness

The consequence of a declaration is that those obligations under the contract that have yet to be performed are not to be performed (Regulation 47M(1) 2006 Regulations (as amended by the 2009 Regulations)).

The 2009 Regulations also make it clear that the court may make any order that it thinks appropriate for addressing the implications of the declaration and any consequential matters arising (Regulation 47M(3), 2006 Regulations (as amended by the 2009 Regulations)).

However, that power should not be exercised in a way which is inconsistent with provisions agreed by the parties to the contract for the purpose of regulating their mutual rights and obligations in the event of a declaration being made (Regulation 47M(5) and (6), 2006 Regulations (as amended by the 2009 Regulations)). This limitation on the court's power is subject to the proviso that it does not apply where the provisions agreed are "incompatible with the requirement" of the ineffectiveness remedy (Regulation 47M(6), 2006 Regulations (as amended by the 2009 Regulations)).

Contractual provision: the effect of this is that the 2009 Regulations expressly encourage parties to make contractual provision for the consequences of ineffectiveness. The parties can agree that, for example:

• Property or other resources will transfer back in the event of a declaration.
• Payments for services not received or works not commenced shall be repaid.
• The parties will agree a mutually acceptable cessation plan for the orderly running down and handover of services.

The parties can expect that such provisions would survive the declaration.

The prospect of ineffectiveness will no doubt give rise to some inventive contract drafting. For example, in Pressetext material change cases, where a mutually agreed modification or extension to a contract gives rise to an obligation to re-tender and no tender is held, a declaration could be anticipated and suitable contractual provisions agreed. These might include a provision whereby the parties would agree that an alternative modification or extension should be agreed which would not constitute a material change to the existing contract. The parties could then argue that the existing contract with the non-material change should continue in its agreed form in spite of the declaration of ineffectiveness of the material amendments. It may be helpful, in this regard, to have a clear severability rule in order to enable the severance of the material amendments in the event of a declaration.

However:

• If the parties were to agree, for example, that in the event of a declaration, the contract which is the subject of the declaration would be replaced by another contract which effectively replaced the original (ineffective) rights and obligations with equivalent rights and obligations going forward, this would most likely be seen as undermining the effectiveness of the remedy and thus incompatible with the 2009 Regulations. Such provisions would probably not survive the declaration.
• Contracting authorities and successful contractors may be wary of including provisions governing the effect of a declaration for fear that the court may interpret them as an admission that the contract or contract variation is unlawful.

Determination by the court. the 2009 Regulations also provide that the court may address issues of restitution and compensation as between the parties to the contract so as to achieve an outcome that the court considers to be just in all the circumstances (Regulation 47M(4), 2006 Regulations (as amended by the 2009 Regulations)).

Particularly in the absence of any pre-agreed contractual provisions, therefore, the court could order compensation to the parties based on equitable doctrines; this could include compensation to reflect the value of services or goods received by each of the parties and avoid unjust enrichment. For more information on types of order that a court may make, see Practice note, Remedies: restitution: Services rendered by the claimant to the defendant (quantum meruit and quantum valebat) (www.practicallaw.com/5-107-4865).

There may, in practice, be no need for the court to rule on the consequences of the declaration as between the contracting parties (in particular, if the parties to the contract have already agreed what would happen in the event of such a declaration). Similarly, even in the absence of any contractual provisions, it would be open to the parties to agree an equitable exit from the contract. It seems quite likely, therefore, that the court would only be called on to adjudicate on these matters in the event of a dispute between the contracting parties or, possibly, where the claimant complains that the way the declaration is implemented by the parties undermines the declaration's purpose.

Common law rights: other common law rights, in particular, the duty of confidentiality, would still apply after a declaration. This might mean that, even if there were uncertainty over whether the specific contractual confidentiality obligations survived the declaration, the common law duty of confidentiality would still apply. This may be relevant in regulating, for example, the use of the contractor's confidential information following termination of the contract.

Penalties instead of or in addition to ineffectiveness

Financial penalties and contract shortening: the 2009 Regulations provide that where a declaration is made, the court must also order the contracting authority to pay a financial penalty (Regulation 47N(1), 2006 Regulations (as amended by the 2009 Regulations)). In addition, the remedy of damages may be available.

Further, where the court has decided, on the grounds of overriding general interest, not to grant a declaration, it must impose a financial penalty and/or require the duration of the contract to be shortened (Regulation 47N(2)(a) and (3), 2006 Regulations (as amended by the 2009 Regulations)). This also applies in circumstances where the court is satisfied that there has been a breach of the standstill or suspension obligation, but does not make a declaration (either because none was sought or because the court is not satisfied on other grounds that a declaration should be made) (Regulation 47N(2)(b) and (3), 2006 Regulations (as amended by the 2009 Regulations)).

Damages: it is unclear from the 2009 Regulations what a court should do in circumstances where, for example, a claimant brings a damages action after a contract has been entered into but the court considers that the grounds for the ineffectiveness remedy are available.

The claimant may not want the contract to be set aside, preferring a loss of opportunity damages claim based on the margin that it might have obtained over the duration of the contract. If the contract were to be declared ineffective, that would limit the extent of the possible loss of opportunity damages (because the ineffective contract would presumably be re-tendered, thus giving the claimant the opportunity to mitigate its loss).

The 2009 Regulations imply (by providing for alternative penalties where a declaration is not sought) that the court need not grant a declaration where one is not sought. On the other hand, they make it clear that a declaration is mandatory where the court considers that the requirements for ineffectiveness are met (see above). Presumably, the answer is that the court will not consider the matter where ineffectiveness is not sought, so the grounds for a mandatory declaration will not be met.

When ordering one of the alternative remedies to a declaration, the court's overriding consideration is that the penalty must be effective, proportionate and dissuasive (Regulation 47N(4), 2006 Regulations (as amended by the 2009 Regulations)). The court will have regard to:

• The seriousness of the breach.
• The behaviour of the contracting authority.
• The extent to which the contract remains in force (if it is shortened).

(Regulation 47N(5), 2006 Regulations (as amended by the 2009 Regulations))

Any penalties are payable to the Treasury.

Time limits and ineffectiveness

There are special time limits for seeking a declaration:

• In cases where a contract award notice has been published in the OJEU (or the claimant has been informed by the contracting authority of the contract's conclusion and been given a summary of the relevant reasons), then the time period during which the proceedings may be started is 30 days, beginning with the day after the date of publication of the contract award notice (or beginning with the day after the date on which the claimant was informed of the conclusion and given reasons) (Regulation 47E(2)(a), 2006 Regulations (as amended by the 2009 Regulations)).
• In other cases, where no notice has been published or information otherwise given to potential claimants, the proceedings must be started within six months of the day after the date on which the contract is entered into (Regulation 47E(2)(b), 2006 Regulations (as amended by the 2009 Regulations)).

The 2009 Regulations also make it clear that the court's ability to extend the time limits where there is a good reason for doing so does not apply to the time limits applicable to the declaration remedy (see above). In effect, even if no publicity was given to the unlawful and unadvertised contract award, the limitation period on bringing an ineffectiveness remedy is still limited to six months from the date of the contract being entered into.

In circumstances where a voluntary transparency notice expressing the contracting authority's intention to enter into the contract and granting a standstill is published (see above), the ineffectiveness remedy is not available. This is the alternative means of ensuring that the prospect of an ineffectiveness action being brought is avoided altogether and the parties will not in these circumstances need to worry about the applicable limitation period.

Dealing with the new Remedies Directive: practical steps

There are some areas of uncertainty and many areas of change under the 2009 Regulations. All contracting authorities and contractors will be keen to ensure that the new provisions are taken into account in reaching commercial decisions on public contracts.

Litigation

This legal reform will make litigation a little easier, and it will shift the regulatory risk and ensure that it is shared, to an extent, with contractors. While litigation will remain a costly, lengthy and uncertain process, the introduction of a suspension obligation and new tougher remedies following contract signature are likely to encourage potential litigants to bring actions.

Particularly during the standstill period, the current options for bringing litigation are difficult and unattractive. Going forward, the additional debrief information required in the standstill letter and the automatic suspension on the issue and service of proceedings will reduce some of the barriers to justice. It will be less risky to bring an action because the claimant will not need to incur the cost of seeking an interim injunction should not be required to grant a cross undertaking as to damages.

While the claimant could still incur substantial costs later in the process, the commencement of proceedings may be sufficient to achieve the desired result. This may, for example, be the decision to re-tender the contract or at least rewind the procedure to the previous stage at which the breach occurred.

Procurement risk

The shift in procurement risk will arise as a result of the potential consequences that could be suffered by successful contractors following contract signature in the event of a declaration. In the past, contractors might have been tempted to put pressure on contracting authorities to enter into quick, direct contract awards in order to avoid the costs and uncertainty of a tender process.

In doing so, the contractors would have been comforted by the fact that once the ink was dry on the contract, their risk exposure would be negligible: all the risk of a damages action would be with the contracting authority. In the future, this risk will be shared, as the contractor will also be vulnerable to the consequences of the ineffectiveness remedy.

Focus for contracting authorities

It is unclear how contracting authorities and contractors will adjust their conduct. One desired and likely effect will be that contracting authorities may have a more urgent regard to the public procurement rules, given the additional level of risk that will now be incurred in breaching these rules under the 2009 Regulations.

Given the grounds for the ineffectiveness remedy, their increased compliance efforts may well focus on avoiding unlawful direct awards and ensuring, where a contract is being tendered, that the standstill rules are closely followed and that the automatic suspension rules are honoured.

Negotiations

There are therefore likely to be negotiations between contractors and contracting authorities as to the allocation of procurement risk.

Contractors who are to benefit from a direct contract award without a tender procedure may take a closer interest than previously in the public procurement rules. They may even suggest that the contracting authority provide an indemnity to cover their losses in the event of a declaration. Alternatively, the contracting authority may require an equivalent indemnity from the contractor in return for agreeing to the direct contract award without conducting a tender procedure.

Borderline cases

It may be that, in cases where the application of the public procurement rules is uncertain, the prudent approach will be to publish a transparency notice in advance of the contract award in order to remove the possibility of an ineffectiveness claim. The disadvantage of such a notice is, of course, that it attracts attention and invites challenge.

The alternative may, therefore, be some form of suspension of the contract during a preliminary period while the prospect of a declaration remains. Clearly, this period can be limited to 30 days if a contract award notice is published in the OJEU. Again, the downside of this is that it attracts attention.

Insofar as an unlawful direct contract award may go unnoticed in the market, the most attractive option may be to wait and see for the whole six month period, possibly with some form of standstill under the contract or at least delay in undertaking obligations and committing expenditure which will be difficult to unravel or return in the event of an action being brought.

Government guidance

The 2009 Regulations were the outcome of a lengthy consultation process conducted by the UK Office of Government Commerce, which has indicated that it intends to publish guidance on the new rules. However, a timeframe for this guidance has not been set. Once guidance is published, some areas of uncertainty within the 2009 Regulations may be clarified.

Key first actions

This note highlights a number of areas of uncertainty about how the Remedies Directive will be applied to public procurements commenced after 20 December 2009. These uncertainties are likely to be addressed, at least in part, by Government guidance and, in due course, the courts.

However, there are certain steps contracting authorities should take immediately to mitigate the increased risks that will exist under the new regime:

• All staff involved in procurements should be briefed and made aware of the importance of the standstill period and the ineffectiveness remedy.
• Contracting authorities should consider whether guidance to evaluation teams should be updated, so that it is easier to compile details of the characteristics of tenders for debrief purposes.
• Contracting authorities should consider whether any action needs to be taken in relation to proposals to make direct contract awards without a call for competition in light of the new remedies and the transitional provisions, including possible contractual provisions.

Reproduced from PLC Public Sector with the permission of the publishers. For further information visit http://www.practicallaw.com/ or call 020 7202 1200.

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