Green Paper Briefings: Procurement Challenge Proposals

This article does not intend to cover all the proposals contained in the Green Paper relating to this topic (which are generally set out in Chapter 7 of the Green Paper), focussing instead on those proposals which we consider to be the most consequential if implemented. One important area in particular that is not covered by this article, but which will have far-reaching implications on procurement practice and procurement challenges, is the proposed removal of mandated standstill letters. This controversial issue will be addressed in a future article by us on the issue of transparency in procurement.  

Forum for Complaints

It is of course welcome, and in any event necessary in light of the UK’s obligations as a newly independent member of the WTO’s Government Procurement Agreement, that the Green Paper recognises that an “effective and well-functioning review system is central to the successful operation of any public procurement regime”. It is also welcome that the Government has acknowledged the robustness and trustworthiness of the current review process, which generally involves cases being heard before the Technology & Construction Court division of the High Court. In this regard, it appears that the Government’s main objective is to maintain this process by and large, with the proposals being more of a tinkering around the edges in our view (as opposed to the “fundamental changes” promised in the Green Paper). 

One area in particular, however, relating to the Court process that should be strongly supported is the proposal for a tailored fast-track system allowing for expedited trial processes. Expedition may present its own challenges in some cases which will clearly need to be managed; however, it is a shortcoming of the current Court process that procurement cases are not automatically expedited.  Instead, as litigation tactics set in, parties find themselves arguing over the merits and demerits of expedition, resulting in some cases in expensive applications being made to the Court and even more expensive hearings taking place. In the majority of these instances, expedition is granted. We discuss elsewhere in this paper the merits of focussing on pre-contractual remedies, which in our view absolutely requires expedition, but in any event every procurement challenge involves uncertainty for a public sector organisation spending taxpayers’ money. The quicker certainty can be given the better and so an assumption in favour of expedition would be very useful.     

The Green Paper is disappointing, however, in its lacklustre support for a specialist tribunal system for procurement complaints. No substantive proposals are made in this regard, other than for the Government to continue to consult with Her Majesty’s Courts and Tribunals’ Service and other stakeholders. We understand that any future consultation would only relate to whether an existing tribunal could be used for procurement challenges (perhaps the Competition Appeals Tribunal for example), rather than the establishment of an altogether new tribunal. This approach is likely to pre-determine a negative result.

This is disappointing. Bird & Bird practitioners in a number of EU/EEA Member States where tribunal systems exist tell us that they are quick, inexpensive and generally effective at resolving disputes. Where an effective resolution cannot be found, complaints are then dealt with by way of a Court process similar to that which operates in the UK. In England & Wales, however, simply getting a stamp on a Claim Form can cost as much as £10,000, and with no assumption of expedition, as already highlighted, proceedings can take months, if not years. This acts as a particular barrier to claims by SME, VCSE and charitable bidders who generally feel that the current review system is ‘not for them’. Unless more fundamental changes are made to the Court system than those outlined in the Green Paper, we do not see how these groups of potential challengers can be adequately provided for. 

From a practitioner’s perspective, a tribunal system could also facilitate the easier interpretation of the procurement rules, allowing for greater certainty and fewer complaints. Procurement law can be complex and it evolves constantly in light of practice, case law, policy, etc. Contracting authorities are often faced with discrete legal issues where there is no black and white answer, and where, as a result, they either proceed at risk or don’t proceed at all. A system which allows for the rules to be interpreted by a suitable authority in near real time would result in better procurements for both the public and private sectors. 

Reimagining Remedies

The Green Paper highlights that, as well as offering an opportunity for redress where a breach has occurred, the purpose of the review system should be to act as a deterrent against breaches in the first place. It highlights that, under our current rules, there are a number of potential pre- and post-contractual remedies available, the most notable of which are: 

• Setting aside an award decision
• Contract ineffectiveness 
• Damages

The automatic suspension, which is an important measure, is not strictly a remedy and is considered elsewhere in this article. 

The Green Paper sets out a strong preference for pre-contractual remedies, such as having an award decision overturned or a procurement document amended, over post-contractual remedies, mainly damages. Having acted for hundreds of potential claimants in procurement challenges over the years, our firm view is that this preference is to be welcomed. It is our overwhelming experience that unsuccessful bidders who become aware of a breach of procurement law simply want a fair chance to win the contract in question. Seldom, in our view, do challengers approach procurement litigation with a view to being awarded damages (at least at the outset). As such, this proposal if implemented would go a long way in addressing concerns by the private sector that the review system is stacked against them from the start. As noted above, this preference for pre-contractual remedies will only work effectively if implemented in tandem with the Government’s proposals for expedition. Quicker review decisions will mean that the negative impacts of an automatically suspended contract are considerably reduced, allowing for more automatic suspensions to remain in place.  

However, arguably one of the most controversial proposals in the entire Green Paper is that of limiting the potential damages available to a challenger to legal fees plus 1.5 x bid costs in most cases.  In our view, this proposal is curious to say the least and not particularly well explained or justified in the Green Paper. The Government highlights first that public funds must be spent effectively – one cannot argue against that. However, the paper also identifies in a number of places how rare it is that procurement challenges run all the way to a trial on damages. The conclusion then that “large amounts of public money” is being spent to “compensate losing bidders” doesn’t ring true.  Admittedly there have been some very substantial payouts by Government in recent years in respect of certain high profile procurements, but in these cases it’s difficult to argue against the level of damages awarded when put into the context of the significance of the breaches which were found to have occurred. In our view, the spectre of a substantial damages claim does act as a deterrent on authorities and does generally improve procurement practice across the board. 

The difficulties with the proposals are principally twofold in our view: 

1. A 1.5 x bid costs level will not act as a suitable deterrent, contrary to what the Government believes. In our view, it will be all too easy for an authority to accept the payment of this sum of money and, as such, it is potentially counter-intuitive that such a proposal would result in less public money being spent on damages/settlements. As already noted, the current system results in only a very small number of damages awards being made. Under this new system, we can see minds on both the authority and challenger sides very quickly settling around the 1.5 x figure and more deals (perhaps multiple deals with multiple challengers) being done. 

2. The means of calculating what the level of bid costs should be is unclear and will be very fact specific. The Green Paper does acknowledge this and proposes the development of a ‘should-cost’ model; however, to our mind this will be a tricky subject and is unlikely to be satisfactory in many individual cases. 
It should be noted that the 1.5 x bid costs limit wouldn’t apply in certain circumstances, including illegal direct awards and where malfeasance in public office has been found. Clearly, if the Government is to proceed with the proposed cap, these exceptions make considerable sense.

We would also add that, on our reading of the Green Paper, there is a certain tone which infers that a number of procurement claims are speculative and aimed at eliciting substantial payouts by way of damages/settlement. This is not our experience – as noted already, in the overwhelming number of cases, challengers bring claims reluctantly and only to try to overturn the award decision. Damages are not generally the (or even a) motivating factor. 

Not so Automatic Suspension 

The Green Paper also includes significant proposals to the way in which the ‘automatic suspension’ on contract award operates once a claim is made against a procurement. The automatic suspension continues until a Court, usually on the application of the contracting authority, has determined that grounds exist for it to be lifted and for the contract to be awarded, leaving the claimant with a damages only claim. The test traditionally used to determine these issues was set out in the well-known American Cyanamid case, which is also the test used for granting injunctions (the automatic suspension being a kind of reverse injunction). Key to that test is a determination of whether damages would be an adequate remedy for the claimant, and in many cases the Court decides that they are, thereby lifting the automatic suspension. This is sub-optimal for both claimants and authorities given what we’ve already addressed i.e. that claimants generally want a chance to win the contract and authorities tend not to want to pay damages. 

A new, procurement-specific automatic suspension test is proposed which balances public interest, urgency, the importance of upholding procurement law and the impact on the winning bidder against the rights of the claimant. Obviously detailed thought will have to be given to the specific formulation of that test, and we wait to see how it is interpreted by judges if introduced, but the acknowledgment that the current test is problematic and requires resolution is positive. 

The other key proposal in respect of the automatic suspension is that it would not apply where the authority had awarded its contract in reliance of the extreme urgency or new ‘crisis’ exemptions. This would only be the case where the authority had complied with the conditions for reliance on these grounds, which would essentially involve publishing a notice in the interests of transparency (which, as we understand it, would be similar to a contract award notice). Analysing these proposals in the midst of a global pandemic means it’s difficult to argue against the Government’s reasoning. In a crisis, such as the COVID-19 pandemic, it is absolutely vital that authorities are able to procure rapidly without the threat of being automatically suspended. 

Our concern, however, is what happens where an authority has relied on crisis/extreme urgency but the underlying facts don’t support their arguments? Practitioners are well aware of the Fastweb case relating to the publication of Voluntary Ex Ante Transparency or VEAT notices, which essentially concludes that a VEAT notice is only valid if the underlying arguments for reliance on an exemption are genuine.  One can foresee situations in which an authority publishes the necessary notice but the grounds for crisis/extreme urgency are not made out or, perhaps more likely, where there is a crisis/extreme urgency but the authority procures beyond what is immediately necessary to respond to that crisis/urgency. It seems to us that, even in these circumstances, a challenger would lose its right to automatically suspend the contract and would have to pursue some other remedy. Whilst the Green Paper does acknowledge the increased relevance of post-contractual remedies in situations like this, we consider it to be a point which requires further thought. 

Apparent Omissions 

There are two issues which we consider to be very important in the context of the Green Paper chapter on procurement challenges and remedies and which interact with many of the points raised above, but which, curiously, have not been dealt with in any detail. These are: 

1. the general 30 day limitation period for bringing a procurement claim; and 
2. the remedy of ineffectiveness. 

Given statements elsewhere in the Green Paper (notably in Chapter 8 which deals in part with contract amendments), we assume that the Government intends to keep the status quo on these two issues. However, even in these circumstances, it would appear to us that some of the changes the Government does propose to make elsewhere in the Green Paper would require further thought as regards limitation and the availability of ineffectiveness. We therefore wait to see what, if anything, the Government does to provide further clarity.