The implementation of the new Remedies Directive into UK law
on 20 December 2009 presents serious risks to unwary suppliers.
Where a public sector customer has not complied with the law, the
supplier could end up bearing the cost,writes Mark
Bassett, senior associate atDenton Wilde
Sapte.
The current regime
Purchasing by public bodies is governed by the Public Contracts
Regulations 2006. In a nutshell, the regulations require that, when
a public body wants to purchase an IT system and the cost will be
above a certain value specified in the regulations, it must
formally advertise its requirements and comply with a detailed
tendering regime.
If something goes wrong in the tender process, once the contract
has been signed, the principal remedy is damages.
The supplier who wins the contract does not generally bear the
risk of a challenge occurring - in the worst case scenario of a
challenge being brought by a disgruntled supplier who didn't win
the bid, the public authority would have to pay damages. The
contract cannot be ended and the successful supplier bears little
risk
Once the public body has chosen the supplier who will provide
the IT system, it need only tell the unsuccessful suppliers the
"score" they achieved (in the scoring system through which the
successful supplier is chosen), and the name and score of the
winner.
If requested, the public body also needs to disclose the general
advantages that the winning bidder had which won the bid for them.
A short time after this information has been provided by the public
body (usually 10 days after notifying the unsuccessful suppliers),
the contract can be signed.
The new regime
The amended regulations radically change this position. Under
the new regime, once a winning tender has been identified, the
public body must tell the unsuccessful suppliers as soon as
possible of the full reasons for the decision. The unsuccessful
suppliers are able to challenge the public body on the decision,
and such a challenge automatically suspends the contract conclusion
(ie, the contract cannot be signed once a challenge has been
launched).
Unsuccessful suppliers will be in a much stronger position to
identify and address the points which ultimately meant they were
unsuccessful in their bid. They will have the chance to address
these issues before the contract is awarded. As a result, it is
expected that challenges will become more common.
In addition, the supplier who wins the contract will also face
considerable danger under the new regime. In the event of a court
challenge being made by an unsuccessful supplier following the
contract being signed, the court has a new duty to declare the
contract ineffective in certain situations.
This new remedy leaves the appointed supplier in a position of
considerable uncertainty and could result in the supplier suffering
significant losses if investment decisions are taken on the basis
of a contract that is subsequently declared ineffective. To make
matters worse, it will be possible to bring a challenge for up to
six months after the contract has been awarded.
Implications of the new regulations
The sensible approach for suppliers is to become more cautious
and to be aware of public bodies' obligations under the procurement
regime. In cases of doubt, where the cost of a successful challenge
could be significant, it will be necessary to check that the public
body has observed the necessary steps outlined above.
Working with lawyers to develop standard clauses to address the
possibility of the contract being declared ineffective will also be
a prudent step.
The real significance of the amended regulations is likely to be
more cautious behaviour by suppliers and public bodies, and more
time-consuming public procurement procedures, as public bodies
attempt to reduce the risk of a challenge. Suppliers will need to
be vigilant and aware of their public sector customers'
obligations, and should attempt to reduce the risks that might
result from their contract being challenged.
On a more positive note, where a supplier feels that a public
contract has been awarded unfairly it will now have an effective
means of challenge. Whether this reform actually strikes the right
balance, only time will tell.
Amanda Lewis and Mark Bassett will be running a seminar in
London dealing with the risks and opportunities presented by the
implementation of the Remedies Directive later this year. For
details, please contact Mark atmark.bassett@dentonwildesapte.com
.