Regulatory Outlook | Regulated Procurement | July 2017

Current issues

New test for damages claims

The Supreme Court has held that there is a positive obligation on claimants claiming damages in public procurement challenges to show that the breach by the relevant contracting authority is ‘sufficiently serious’. This means that the bar for a damages claim is now arguably higher than it was previously. However, as it stands from this case, any breach of the Pubic Contracts Regulations 2015 that results in the failure to award to the most economically advantageous tender will be regarded as a ‘sufficiently serious’ breach. One potential outcome of this change is that the courts may be more willing to allow the automatic suspension of contract signature (prohibiting a contract from being signed once a claim form has been issued) to remain in place. The decision flows from a case in which the UK government’s Nuclear Decommissioning Authority settled claims brought by unsuccessful bidders for a £6.1bn nuclear decommissioning contract, paying £100m in damages and legal costs. An independent inquiry into the handling of the procurement and subsequent litigation will be conducted, with the report expected in October 2017.

Access to UK public contracts immediately following Brexit

A potential immediate consequence of Brexit may be that UK contracting authorities could seek to give preferential treatment to UK businesses. Suppliers without a UK place of business may want to consider taking steps to enable them to continue to bid for UK contracts immediately following Brexit. We suggest suppliers without an existing UK supply base may want to seek legal advice to consider available options.

Increased transparency and disclosure

Two recent cases and a new Procurement Policy Note issued by the Government have placed greater onus on contracting authorities to proactively disclose information that may previously have been withheld on the grounds of commercial confidentiality.

The decision in the case of Bombardier v Merseytravel [2017] EWHC 726 held that unsuccessful bidders are entitled to fully investigate the winning bid for evidence of breaches of procurement regulations. This followed the recent decision by the Information Commissioner’s Office (ICO) regarding a request for information under the Environmental Information Regulations to Gloucestershire County Council (EA/2015/0254-6). The ICO allowed commercially sensitive aspects of a final contract to be disclosed to the complainants on the basis that disclosure was in the public interest. These developments mean that, when bidding in public procurements for public contracts, tenderers should make clear to contracting authorities that information contained in their bids is confidential and commercially sensitive, and should be prepared to engage with contracting authorities to resist disclosure of their bids, and the final signed contract, to their competitors.

Consultation on single source defence contracts regime

The Single Source Contracts Regulations 2014 apply to contracts between the Ministry of Defence and prime contractors, and to contracts between prime contractors and sub-contractors, where the contract has been awarded by the MoD without any competition and the value is over the relevant threshold. The Single Source Regulations Office is the body tasked with overseeing the application of Regulations. In March 2017, SSRO concluded a consultation on changes to the regulations, proposing to broaden their scope to include amendments to existing contracts, and to lower the threshold for qualifying sub‑contracts. SSRO’s final recommendations are expected to be published in June 2017 and will then be considered by the Secretary of State for Defence, with a likely implementation date of early 2018.

In focus: Personal liability

There are no offences carrying personal liability under procurement regulations in the UK. However, the convictions of employees or members may result in a supplier being excluded from participating in public procurements.

What is the risk?

If any individual member of a bidder’s administration or management, or any individual with powers of representation, decision or control over the organisation, has been convicted of an offence, that supplier could be excluded from participating in public procurements. Applicable offences are listed in the regulations (the Public Contract Regulations 2015 and the Utilities Contracts Regulations 2016) and essentially encompass all offences carrying personal liability discussed throughout this edition of the Regulatory Outlook (such as bribery and fraud).

A bidder may also risk exclusion in circumstances where it is a requirement for it to employ individuals with professional registrations (such as accountants or company secretaries) and where, following those individuals being struck off, the supplier no longer meets this requirement.

Why is this relevant?

For companies that rely on contracts with public bodies or regulated utilities in the UK and across the EU, the financial impact of being excluded from participating in regulated procurements could be devastating. The exclusions apply to all regulated procurements in the UK and across the EU. Contracting authorities/utilities have no discretion in applying the exclusion. A supplier could find itself unable to win any new contracts until either it has taken ‘self-cleaning measures’ (see below) or the individual(s) concerned no longer retains a connection to the supplier.

What steps can be taken to mitigate the risk?

The regulations allow suppliers to ‘self-clean’ if they find themselves impacted by the personal liability of an individual. A bidder will need to provide evidence demonstrating its reliability despite the existence of a ground for exclusion. This is likely to include evidence of:

• implementing concrete technical, organisational and personnel measures to prevent further criminal offences or misconduct;
• actively collaborating with investigating authorities; and
• having paid compensation to those affected by the criminal offence or misconduct.

EU certificates

Some EU countries require bidders to provide certificates as proof that they and their members are free from criminal convictions. While a bidder can provide DBS certificates for individuals, there is no company equivalent available in the UK. Some countries will accept a sworn declaration, but this is not always acceptable. Bidders should clarify requirements well in advance of submitting tenders and seek legal advice if necessary.

Dates for the diary

October 2017 – An independent inquiry into the UK Government’s handling of the procurement process for the £6.1bn Nuclear Decommissioning Authority contract is being set up and will be led by Mr Steve Holliday, former Chief Executive of National Grid. The inquiry will examine all aspects of the procurement process and subsequent litigation, the actions and conduct of the NDA and Government, and the extent to which assurance processes were effective. The report is due to be made available to the House of Commons and the Business, Energy and Industrial Strategy Select Committee in October 2017. It is expected to make recommendations and may result in further investigations and/or disciplinary proceedings.

Autumn 2017 – The CJEU is expected to rule on whether bidders are under a duty to disclose economic links to each other to the contracting authority when bidding in the same procurement. The question was referred by the Lithuanian national court and considers whether related bidders are genuinely in competition (i.e. are they engaged in a ‘pretence of competition’ ?) and the extent to which the contracting authority must bear the risks of such pretence if the duty to disclose is not set out in the procurement documents (Case C-531/16).

Spring 2018 – The CJEU is expected to rule on whether the failure to provide a performance bond in a procurement can result in exclusion from a procurement. The Advocate General gave an opinion that a performance bond could be a valid selection criterion. However, this position has been criticised by commentators, who argue such a ruling may be incompatible with competition law. The AG’s opinion offers guidance to the CJEU and may be followed or rejected (Case C-76/16).