Recent developments in procurement law - framework agreements: can they be set aside?

16 March 2009

Jeremy Sharman

Introduction

There are many hurdles that a dissatisfied bidder faces if it wants to challenge the procurement decision of a contracting authority in relation to the award of a public contract. These include the short time frame for bringing a challenge, the often inadequate information provided at the de-brief, as well as the inability to set aside a contract award once the contract has been entered into (the only remedy lying in damages). This latter point is encapsulated in Regulation 47(9) of the Public Contracts Regulations 2006 (“PCR”) which provides that “the Court does not have power to order any remedy other than an award of damages in respect of a breach of duty owed [to economic operators] if the contract in relation to which the breach occurred has been entered into.”

Not surprisingly, for an unsuccessful bidder which believes that it has been treated unfairly, recourse to a damages claim as the sole remedy is very much a second best option, not least because its losses may be very difficult to quantify. What it will want is the decision to be set aside so that it can have another opportunity to win the work.

The McLaughlin case

A recent decision of the of the High Court in Northern Ireland in McLaughlin and Harvey Limited v Department of Finance and Personnel (No.3) [2008] NIQB 122 has, however, raised the prospect that the courts will set aside framework agreements entered into in breach of the procurement rules. Framework agreements are commonly used by contracting authorities in order to establish the terms which are to govern contracts to be awarded by that contracting authority to suppliers during a particular period. Although there can be no guarantees that a supplier who is awarded a place under a framework agreement will subsequently be awarded work under that framework, it does at least give the supplier the opportunity to win work, and a place on the framework is, therefore, potentially of considerable value.

In the McLaughlin case, the court was asked to consider what remedy should be available to a supplier which had been unlawfully excluded from a framework agreement for construction projects in urban regeneration, further education, arts and sports. The value of the work was considerable, up to £800m. The claimant was able to establish that the contracting authority had marked its tender (and others) according to a methodology which had not been disclosed previously and, accordingly, there had been a breach of the Community law requirement of transparency.

The contracting authority argued that PCR 47(9) prohibited the court from granting any remedy other than an award of damages, since the framework agreement was a “contract” within the provisions of PCR 47(9). This argument was rejected by the court.  Part of the rationale for reaching this conclusion was that a distinction had to be drawn between framework agreements and contracts which had already been entered into by the contracting authority with a third party. Framework agreements consisted of the pre-selection of certain suppliers who were allowed to bid, without competition from parties outside of the framework, for specific contracts during the life time of the framework. Setting a framework agreement aside, therefore, did not involve cancelling an existing contract entered into by the contracting authority with a successful bidder where work may have already commenced.

Perhaps, not surprisingly, the claimant’s preferred remedy was to be added to the framework as an additional supplier rather than for the tender process to be re-run. The court declined to order this remedy, questioning whether it had the power to act in this way.  Instead it decided to set aside the decision of the contracting authority to enter into the framework with the successful tenderers. The court concluded that it had power to take this step and that it was a more appropriate remedy than the “manifestly inferior” remedy of damages which would be difficult to calculate, might not be ascertainable for a number of years, and would also be a waste of public money.

Conclusion

It is open to debate whether the court was correct in its conclusion that a framework agreement was not a “contract” for the purposes of PCR 47(9) and whether the decision would be followed by a court in England although it would be of persuasive authority. It is also unclear whether the court would have set aside the framework agreement if contracts had already been called down under it.

The McLaughlin case (which is subject to appeal) does, however, raise the possibility of the courts setting aside framework agreements entered into in breach of the procurement rules. This development, together with the coming into force later this year of the new Remedies Directive, which will enable the courts to declare “ineffective” contracts which have been entered into in flagrant breach of the procurement rules, could prove to be an effective additional remedy to unsuccessful bidders for public sector work. 

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