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A timely challenge

Tuesday August 17th, 2010

By Chris Brennan, Procurement Specialist, Browne Jacobson LLP

Chris Brennan explores recent legal developments that help to clarify the period within which a procurement decision challenge can be brought and the implications for contracting authorities.

The rules on the redress for suppliers in the event of flawed procurement decisions were rewritten at the end of 2009 in order to give suppliers increased chances of having errant decisions reversed before signature of a contract. Signed contracts can also be declared ineffective if entered into in particular circumstances where inadequate opportunity has been given to unsuccessful suppliers to challenge award decisions beforehand.

But things have not ended there. During the first half of 2010, the European Court decided that the UK’s rules around the three-month time limit for challenging procurement decisions lack the certainty they need in order to comply with European law.

The UK’s procurement rules currently state that procurement challenges must be brought ‘promptly and in any event within three months from the date when grounds for bringing proceedings first arose’ (unless the Court of Justice of the European Union – CJEU – considers that there is good reason to extend that period). The requirement laid down by current EU law is that Member States must take the necessary steps to ensure that procurements are ‘reviewed effectively and, in particular, as rapidly as possible’.

In February this year, the European Court in Uniplex (UK) Limited v NHS Business Services Authority considered two questions around the limitation period: when the three-month time limit for bringing a claim begins to run; and whether the requirement to bring proceedings ‘promptly’ is compatible with principles of legal certainty and effectiveness.

Before the decision in the Uniplex case, it was understood that the time limit for bringing a claim began when the grounds first arose – the date of the infringement. Previous case-law identified a public interest in proceedings being brought promptly on the basis that a speedy review of complaints was essential to an effective procurement process. This could technically mean that a legal challenge could be dismissed on the grounds that it had not been brought promptly, even if brought within the prescribed three months.

But in Uniplex the European Court ruled that:

  • the time limit should run from the date on which the challenger knew (or ought to have known) of the alleged breach; and
  • the requirement to bring proceedings ‘promptly’ granted courts too much discretion to dismiss cases even before the end of the three-month period where they were not satisfied that the proceedings had been bought with sufficient promptness. This discretion could leave challengers unsure of whether they were still in time, and so breached the principles of legal certainty and effectiveness as required by EU law.

The CJEU has recently considered the same issue in Commission v Ireland – a case brought against the Irish Government by the European Commission. The Irish Superior Court Rules state that challenges to procurement awards must be made ‘at the earliest opportunity or at any event within three months’.

In a decision consistent with Uniplex, the European Court held that the Irish wording was too uncertain because it, too, left candidates uncertain as to the precise length of the limitation period and prevented them exercising their right to effective review of public procurement decisions.

In the light of these cases, the following additional messages are clear:

  • In practice, it is likely that complainants can only come to an ‘informed view’ once they have full details as to why they have not won the contract. This will be relevant to the question of when the clock starts.
  • The courts have a duty to extend the period for bringing proceedings where it is necessary to ensure that the complainant has a full three months from the date on which it knew, or ought to have known, of the infringement, rather than the date on which the infringement occurred.
  • In the absence of amendment to the Public Contracts Regulations 2006, the courts should avoid applying the ‘promptly’ requirement.

Implications

The above cases have the following implications:

  • Aggrieved bidders now in effect have more opportunity to bring cases which, at first glance, may appear to be out of time. This may result in increased costs for defendants as there is a greater risk that limitation will become a preliminary issue to many proceedings.
  • There is a possibility that failed bidders may seek clarification as to the reasons why they did not win a tender in order to extend the period for bringing a claim as long as possible. This may result in an increased administrative burden on authorities.
  • Public bodies can no longer argue that a case should be dismissed because it has not been brought ‘promptly’, and should be aware that the three-month time limit is open to extension.
  • We may see further amendments to the Public Contracts Regulations in the future as the CJEU’s judgment makes clear that Member States should ensure that any limitation periods are precise, clear and foreseeable.

Reducing the risk of challenge

As more budget cuts loom on the horizon the last thing any authority wants is the cost, let alone the publicity, associated with a protracted procurement challenge.

Challenge risk can be managed by:

  • keeping all records of correspondence including all calls, letters, emails and notes of meetings so that there is a clear audit trail
  • ensuring that full written reasons are offered to any unsuccessful bidders as soon as they have been informed that they have been unsuccessful (this is now a legal requirement in any event)
  • following up debrief meetings in writing, setting out the discussion and reasons for deselection
  • ensuring, at the start of the standstill period, that all unsuccessful bidders are informed of the award decision at the same time, so that they fully understand when the standstill will end

The Sita case

The case of Sita UK Limited v Greater Manchester Waste Disposal Authority was heard in the High Court in England, rather than in the European Court. It concerns a contracting authority, Greater Manchester Waste Disposal Authority (GMW), procuring a PFI project to provide waste disposal facilities for Greater Manchester. The procurement began in 2006. Sita led a consortium which submitted a bid, which was one of two bids making it to the final round. On 27 January 2007 GMW announced that it had selected the other final bidder, Viridor Laing (Greater Manchester) Limited, as the preferred bidder, and on 18 April 2008 announced that it intended to enter into a contract with Viridor.

The contract was entered into on 8 April 2009. Sita went to court on 27 August 2009, claiming that Viridor’s bid could not be said to be the most economically advantageous bid because it had substantially changed in nature between 2007 and 2009. GMW made an application for the claim to be dismissed on the basis that the statutory limitation period of three months began to run on 8 April 2009 and that Sita was therefore too late.

The High Court considered the following three questions which it considered needed clarifying before it could apply the ruling in Uniplex:

1. Grounds for bringing proceedings

The first question was whether the grounds giving rise to a valid challenge should include the infringement itself and some potential loss to the claimant, or whether knowledge of the infringement itself was sufficient, regardless of whether the claimant had actually suffered loss.

The High Court decided that the relevant grounds existed just in the infringement. It reasoned that the date of the infringement was relatively easy to identify, whereas the date on which related losses might be identified was not.

2. Level of knowledge required to bring proceedings

Sita argued that it did not have sufficient knowledge on which to base its claim until July 2009, because it was awaiting facts demonstrating the breach as opposed to facts which simply indicated an infringement. GMW, on the other hand, referred to the Advocate General’s opinion in Uniplex, which stated that once a bidder had received the ‘essential reasons’ for being unsuccessful it could generally be assumed that they had sufficient knowledge of an infringement to bring a claim.

The High Court rejected Sita’s argument, ruling that the deciding factor was the point when the aggrieved bidder first knew (or ought to have known) that it had grounds to challenge the process – in accordance with Uniplex. It decided that Sita had had enough information by April 2009 to begin proceedings.

3. Extension of time

The High Court accepted that GMW had agreed to a degree of time extension while in the process of providing further information which Sita had asked for. It therefore considered whether it should exercise its discretion to extend the time limit, and in making that decision it considered whether the public interest would be served in doing so.

In doing this, it looked at:

  • GMW’s conduct, and in particular an alleged lack of openness on the part of GMW
  • whether GMW would be prejudiced if an extension was granted
  • whether Sita had acted ‘promptly’ in bringing proceedings

The High Court noted that GMW had not acted transparently in disclosing information to Sita, but ultimately decided that the factors above did not justify an extension of time. Furthermore, the six-week delay between Sita receiving the further information from GMW and issuing its legal challenge did not satisfy the promptness requirement. On that basis, the High Court refused to exercise its discretion to extend time in Sita’s favour.

Conclusion

The Sita case is the first one to apply the Uniplex judgment in the UK and should be welcomed by contracting authorities because it provides important clarification.

In practical terms, the judgment reduces the risk posed after the ruling in Uniplex whereby aggrieved bidders might make repeated requests for clarification of the reasons for not being awarded a contract. This is because it is clear from this case that knowledge of the existence of an infringement, as opposed to knowledge of the infringement and that any particular damage or loss has been caused, is sufficient to set the three-month clock running.

The case also makes clear that while authorities are unable to argue that claims should be struck out because they have not been brought sufficiently promptly (despite being brought within the three months), speed is still key when it comes to mounting legal challenges to procurement processes. This is entirely sensible. It would be contrary to the interests of any procurement process (as well as disingenuous to others still bidding in the process and expending time and money in so doing) if a bidder were to let a procurement process continue for up to three months while making up its mind as to whether to challenge, despite having all the information needed to do so.

Further information

For further information, please visit: www.brownejacobson.com

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