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 at Denton 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 at email@example.com.