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Radical remedy?

Tuesday August 17th, 2010

By Peter Elliott, Partner, Bird & Bird LLP

Peter Elliott looks at the impact of the new Remedies regime on public sector procurement in England and Wales.

The Remedies Directive in the form implemented in England and Wales affects procurements starting on or after 20 December 2009. In the run-up to the new Regulations and in their immediate aftermath, there was extensive discussion of what they would mean in practice. Attention focused, perhaps predictably, on the increased remedies available to potential challengers and in particular the potential ability to have contracts set aside even once entered into. There were also widespread predictions of a massive increase in the number of challenges, which many felt would in turn make authorities extremely risk-averse.

Some months have passed since the new regime came into effect. How accurate have the predictions been and what can we say about the likely position moving forward?

As implemented in England and Wales, the new regime’s key elements are:

  • An increase in the information automatically to be provided to unsuccessful tenderers at the start of the standstill period, to provide greater detail of the relative performance of the tenderer’s and the winner’s bids.  This also gives the tenderer in question the whole standstill period to assess the information and prepare a challenge.
  • Considerably increased potential remedies, in particular the possibility of having a contract which has already been entered into rendered ineffective (subject to various exceptions) and fines; in some cases where a court does not render the contract ineffective, it must order one or both of a shortening of the term of the contract or a fine. Fines should be ‘effective, proportionate and dissuasive’.
  • The procurement will be automatically suspended once a legal claim form challenging it is served (this is much easier and cheaper than the previous requirement for a challenger to get an interim or final injunction)

Impact on authorities

In our experience, the impact on authorities has not been particularly dramatic.

In fully advertised, competed procurements, the new regime has so far mainly made itself felt in the form of the automatic information requirements for unsuccessful tenderers, with tailored award notification letters for each tenderer at the start of the standstill period and close attention to compliance with the new information requirements. This is essential because failure to comply precisely with the standstill requirements may effectively re-open the door to ineffectiveness claims after the contract has been entered into.

This, combined with the wider transparency requirements around evaluation criteria coming out of case law (in particular the Lianakis and Lettings International cases) and an appreciation that evaluation is one of the main areas of procurement dispute, is making many – but still not all – project teams focus at an earlier stage on evaluation models, with a real stress on making sure that they are robust and appropriately shared with bidders.

The new regime has not had much of an effect on authorities’ use of existing frameworks, frequently an area of borderline practice. This is almost certainly because the UK’s transitional arrangements (although questionable in terms of correct implementation of the Directive) mean that call-off contracts under frameworks are only governed by the new remedies rules where the procurement of the framework itself (not the call-off contract) started on or after 20 December 2009.

Where at least the procurement and legal teams in authorities are generally much more nervous about the new regime is in dealing with proposed extensions or major changes to current contracts. Here anxiety over the potential risks – in an area in which even flagrant breaches of procurement law often used to be risk-free – is leading to much more detailed analysis of the scope of the proposed changes, especially in the light of the Pressetext case.

We have not as yet seen many changes in authorities’ big decisions and strategic approaches where we can safely say the new remedies regime has been the key reason for the change. This is partly down to the relatively short live period of the regime; this has itself been limited further both by the UK’s overall approach to transition, which has generally deferred the new rules where possible, and the change of Government, which led to a pause in procurement activity around the election and has in many areas led to further delays as the new administration reviews both current projects and future procurement.

Also, however, the impact on behaviour at both the project and the strategic level has been lessened by the fact that legal and procurement personnel are aware of the new regime but often not absolutely clear what it means in any given scenario. At the same time, our experience suggests that their senior management still do not take procurement law risks very seriously or consider them a significant factor in making strategic decisions. Rapid change in this area may unfortunately only come about if there are more high-profile successful challenges, in particular in relation to current contracts and involving ineffectiveness orders or large fines.

Impact on bidders

At this stage, it is hard to find dramatic trends in terms of bidder behaviour which can be clearly linked to the new regime, although again this may be connected with the relatively early stage and the general interruptions to public sector procurement activity in recent months. The main impact of the new regime so far seems to be on a case-by-case basis and in two main areas. The first is when dealing with proposed changes to current contracts, where bidders are often concerned about the risk of ineffectiveness orders and there is a growing but not yet universal trend to ask for ‘unwind’ comfort to protect them in this case. The second is when considering a challenge, where the automatic provision at the start of the standstill period of more information about the award is often leading bidders to question the validity of the marking and to feel they have enough time to make challenging a real prospect. However, although there has been a definite increase in challenges and complaints, this seems to be more the effect of a combination of the general trend in recent years and the new regime than a clear step change.

As far as we can tell, the supply community is not yet taking extensive advantage of the opportunities to challenge single tender contract decisions or changes to current contracts and look to have them made ineffective.

Strategic considerations and looking forward

The public sector as a whole is engaged in a general review of major current contracts and future procurement to cut costs and increase efficiency. Publicly available information suggests that much of the current thinking involves the potential renegotiation or rescoping of current contracts, wider sharing of currently contracted services and goods and more extensive use of frameworks.

These are all higher-risk areas in terms of procurement law breach and ones in which the new regime gives challengers real improvements in terms of remedies. In practice, the new regime should have a significant impact, either in terms of restricting the strategic ideas currently being considered or, if government bodies decide to take risks, in making challenges much more viable on a case-by-case basis.

In any event, with the inevitable reduction in UK public procurement spend, the continuing increased importance of frameworks and the improved remedies and ease of action offered by the new regime, it is likely that the current upwards trend in challenges will continue in these areas in particular. We also anticipate that suppliers will start to take a more proactive, strategic approach to the opportunities offered to them by the new regime, and in particular will be more structured in identifying issues such as single tender contract awards and major contract changes. In the longer run, both of these linked developments should in turn raise the profile of procurement law with senior public sector management and may well ultimately lead to a lower-risk approach to procurement approaches.

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