Regulatory Outlook: Regulated Procurement - November 2016

Current Issues

Post-Brexit access to markets: Suppliers to the public and regulated utilities sectors will be waiting to see what form of trade agreements are eventually put in place with the EU and other countries, as these will impact on how procurement is regulated in a post-Brexit world. If a UK-EU agreement is based on the framework the EU has with other trading partners, under the World Trade Organisation Government Procurement Agreement, standard public sector procurement will remain regulated as it is today, but with reduced regulation in the utilities and defence sectors and for concession contracts.

Early market engagement: Contracting authorities and central purchasing bodes (for example the Crown Commercial Service (CCS)) appear to be following government guidance and spending more time engaging with suppliers before commencing procurements. Central government is encouraged to make greater use of Prior Information Notices (PINs) if they relate to a specific procurement or industry sector-specific market engagement activity, to promote early market engagement. Suppliers should set alerts for relevant PINs in the Official Journal (OJEU).

Exclusion for poor past performance: The selection stage (Pre-Qualification Questionnaire (PQQ)) of regulated procurements allows purchasers to exclude suppliers for breaches of previous public contracts and poor references in relation to contractual performance on other public contracts. Suppliers should avoid situations which lead to early termination of contracts, damages or other comparable sanctions, which would have to be declared in subsequent PQQ responses.

Limitation periods for challenges: Suppliers have 30 days to challenge a breach of the procurement regulations from the date it knew or ought to have known about the breach. This is leading to claims being issued during tender periods as a result of breaches within tender documents which public bodies refuse to correct via the clarification question process. Suppliers need to ensure that all tender documents are scrutinised very carefully on receipt or risk prejudice later in the process which they will be time barred from challenging.

Centralised procurement: Central government has moved to a system which buys common goods and services once on behalf of the whole of government, and not individual departments. Suppliers need to be alive to the frameworks being set up to supply across central government or risk being shut out of that market for up to four years (which is the typical length of a CCS framework).

In Focus: Enforcement

The primary method of enforcing procurement regulations is through private claims in the High Court. The applicable regulations, such as the Public Procurement Regulations 2015, impose various obligations on authorities when it comes to running tender exercises, in addition to general European law principles of transparency, fairness and equal treatment. Contractors can take action during the course of a tender exercise to enforce those obligations with an order of the court.

Once an authority has notified bidders of the outcome of the exercise, there will be a 10-day statutory ‘standstill’ period before the contract can be signed, which is extended if any of the unsuccessful bidders issues a claim before signature. If that challenge is successful, the authority may be ordered to annul its decision and re-run the exercise.

Traditionally, procurement challenges have focused on this remedy: preventing the contract from being entered into and seeking the annulment of an award, rewind of the process, or for it to be abandoned and re-run. If the authority can persuade the court to lift that automatic suspension, claims have often fallen away. However, the recent case of Energy Solutions v Nuclear Decommissioning Authority was the first high-profile case for over a decade in which damages were awarded in a claim brought after the end of the standstill period, when the contract had already been entered into.

Following Energy Solutions, we anticipate more suppliers will be prepared to bring claims seeking damages for the losses they believe they have incurred as a result of alleged breaches of procurement regulations.

There are other routes for unsuccessful bidders to make complaints about poor procurement procedures, but none that provide for a financial remedy other than a claim in the High Court. These other routes are:

Complaint to the EU Commission

Although an EU complaint is a relatively cheap option, it suffers from a number of material disadvantages:

• the Commission may not consider that the case is worthy of investigation, at the EU level;
• there is no effective mechanism for injunctive relief (interim measures at the EU level are very difficult to obtain); – there is no fixed timescale for the procedure, and generally the process will be slow and certainly outside the control of the complainant; and
• the complainant will have no control and limited visibility over the conduct of the case.

Mystery Shopper

The Mystery Shopper Service sits within the CCS and allows government suppliers and potential government suppliers to raise concerns anonymously about potentially poor public sector procurement practice. Following receipt of a complaint, CCS will investigate. If it considers that there has been a failure in best practice, it will make recommendations to the public body. The case is then published on CCS’s website.

Complaint to NHS Improvement under NHS Procurement, Patient Choice and Competition Regulations 2013 (NHS PPC Regulations)

Under the NHS PPC Regulations, NHS bodies must refrain from “anti-competitive behaviour” when procuring healthcare services, unless to do so is in patients’ interests. If a supplier considers that there has been a procurement failure it can make a formal complaint to NHS Improvement, which has power to investigate and ultimately order that the procurement (or any resulting contract) be stopped. NHS Improvement will not necessarily investigate; it has a prioritisation framework to help it select suitable cases.

Dates for the diary

November 2016

New PQQ: The old standard PQQ needed updating in order to fit together with the requirements of the European Single Procurement Document (ESPD). There has been an obligation on contracting authorities to accept ESPDs since January 2015 and a mismatch has arisen between the standard form ESPD and the CCS’s PQQ. The ESPD allows suppliers to simply self-certify that they meet the requirements, with the contracting authority seeking evidence of this only from the winning bidder at the end of the process. The new ‘Selection Questionnaire’ document is aligned with the ESPD.

16 November 2016

The European Commission has launched a public consultation on the Single Digital Gateway, an online tool providing information for businesses and individuals to move or do business in another EU country. The Gateway will focus on addressing the current information gap and fragmentation by integrating, completing and improving relevant EU and national-level online information, assistance services and procedures in a user-friendly way. The consultation was open until 16 November 2016.

31 December 2016

A report on whether, and if so to what extent, the Defence and Security Procurement Directive 2009 has achieved its objectives, should be put before the European Parliament and Council by the end of the year. The UK Government will undoubtedly be considering this in developing its approach to how any regulation of defence procurement should be amended in the post-Brexit world.

Early 2017

The Supreme Court will hear the final appeal in one aspect of the Energy Solutions v Nuclear Decommissioning Authority case. The NDA is appealing the Court of Appeal decision that it is not necessary for a claim to be issued in the 10-day standstill period, as long as it is issued within the 30-day limitation period from date of knowledge of a breach of the procurement regulations. The judgment currently leaves contracting authorities with a risk of a claim for damages being brought after it has signed a contract with the purported winning bidder, as happened in this case. The damages claim was successful (although NDA is seeking leave to appeal), leaving NDA liable for around a £200m damages pay-out – as well as paying profit on the ongoing contract.

For more information and details of all of the other areas covered by the Regulatory Outlook click here.