How to boost your chances of being successful in public sector tenders and protect your position

With the state of the current economy, there is little more comforting than a long-term contract from a public sector body. However, those with experience of tendering for such contracts will be aware that the road to success is strewn with red tape and the only way to ensure success is to jump through the hoops. Recent changes in law have led to avid debate over whether the balance has now been tipped in favour of the contractor... We look at the recent changes and explain why they are important to the hopeful contractor.

Save for a few exemptions, all public bodies that purchase supplies, goods or works over a certain threshold must advertise that contract in the Official Journal of the European Union (OJEU) and conduct a free and fair competition between bidders. The rules are enshrined in the Public Contracts Regulations 2006. Essentially, the aims of the Regulations are to increase competition and transparency in order to create opportunities for all EU businesses, and to promote the free movement of goods and services around Europe.

For a long time the public procurement regime was the subject of considerable criticism. Notably, the previous regime allegedly did not sufficiently address some of the most serious breaches of procurement law, such as illegal direct awards of public contracts without competition and the misuse of framework agreements. Previously, once a contract was awarded there was very little redress for an unsuccessful contractor. With the emergence of The Public Contracts (Amendment) Regulations 2009 ("Amending Regulations"), the following changes have been made:

The Standstill Period: The Amending Regulations retain the requirement for a standstill period and specify that no contract should be concluded following an award decision under the procurement rules before the expiry of a "standstill period" of at least 10 days from the day following the date on which the contract award decision is sent to the "tenderers concerned". It is arguable whether, in fact, there is a need for more information. However, undoubtedly, the information must be provided to the unsuccessful bidders earlier with reasons as to why they were unsuccessful and an explanation of the characteristics and relative advantages of the successful bid.

Suspension of Contract-Making: In recognition of the need to allow the courts sufficient time to act within the standstill period, the Amending Regulations require that once an application for review has been made, the contract cannot be entered into until the court has made a decision regarding the application.

Ineffectiveness: Courts now have the power to strike down a contract which has been awarded in serious breach of the rules. The necessity for a Court to declare a concluded contract ineffective will be reserved for four scenarios:

• where the contract was not advertised in OJEU in circumstances where the Public Contracts Regulations 2006 or the Utilities Contracts Regulations 2006 required an advert; 
• where there were deficiencies in, or complete absence of, observance of the standstill requirements, coupled with a substantive procurement breach at any time during the procurement process; 
• where the contract has been awarded after the commencement of court proceedings challenging the procurement and before the court has ruled on any application for interim measures;
• where there was an award of an above threshold call-off (a contract under a framework agreement) in breach of any of the substantive rules for call-offs (where the contracting authority has elected not to send a standstill notice and observe the standstill for that call-off).

Additional/Alternative Remedies to 'ineffectiveness': The Amending Regulations introduce the remedies of contract shortening and 'civil financial penalties' (fines) as alternative/additional remedies. Where the remedy of ineffectiveness is utilised, the court must also impose a fine (payable to the Treasury) on the contracting authority, thereby increasing the punitive impact. In circumstances where a court does not make a declaration of ineffectiveness (whether because none was sought, or because the court is not satisfied that any of the grounds for ineffectiveness applies, or because there are 'overriding reasons' that require the contract to remain in force), the court must order at least one, and may order both, of the 'lesser penalties' of contract shortening and imposing a 'civil financial penalty'.

What does this mean for businesses tendering for public contracts?

Successful contractors

The major concern for contractors will be the introduction of "ineffectiveness" and contract shortening. It would be advisable to build protection into documentation against the risk of the contract "disappearing" as a result of failure by the contracting authority to follow the procurement regime. This might result in the ability to recoup resulting costs and lost profits. However, this is not straightforward in legal terms - if the contract has been terminated the courts may decide that such safe-harbour provisions also fall away.

So what can be done to protect the contract?
Whilst there are no guarantees on how the courts will interpret them in the context of procurements, comfort letters or collateral agreements might have to be considered. Further adding to the difficulties, there will be subcontractors and suppliers to compensate down the line, which could make the whole process a very expensive and painful experience for the contracting authority. In the same vein, funders will also need to act with particular care when conducting their due diligence to provide funding to the winning bidder and require regular reports from their borrowers on the process. They will also wish to ensure that their debt is secured in the event of termination for breach of the procurement regime. These issues require careful consideration and seeking legal advice at the outset may result in greater security later.

Unsuccessful contractors

While litigation will remain a costly, lengthy and uncertain process, the introduction of a suspension obligation and new tougher remedies following contract signature are likely to encourage potential litigants (i.e. contractors) to bring actions. This is good news for disappointed contractors who feel that they have not been treated properly.

Some practitioners have argued that it will be less risky to bring an action because the claimant will not need to incur the expense of seeking an interim injunction and should not be required to give a cross-undertaking as to future costs and damages. While the contractor claimant could still incur substantial costs later in the process, the commencement of proceedings may be sufficient to achieve the desired result - perhaps the decision to re-tender the contract or at least rewind the procedure to the previous stage at which the breach occurred, thus presenting another opportunity for the contractor to demonstrate their capabilities.

It is early days for the Amending Regulations and there is likely to be a period of uncertainty while the domestic Courts resolve how to interpret the Amending Regulations in light of the potential contract turmoil that might arise. Certainly, contracting authorities are treating the Amending Regulations with great respect and seriously considering the potential impact on everyday procurement. The lesson for them is: Know the Rules and follow them. The Amending Regulations serve as a double-edged sword for contractors - if they are successful, there is a risk of ineffectiveness or the contract being shortened.  However, if they are unsuccessful then there are a number of steps that can now be taken to provide a second chance to tender. Either way, the message to contractors is to know the rules, avoid the pitfalls and consider deficiencies as they arise, in the light of the new law.

Michelmores LLP has a specialist procurement team who advise on all aspects of the procurement process in a wide range of sectors who would be happy to discuss how we might assist your organisation during the tender process.

Jason Phelps is an Associate within the Projects Team at Michelmores. For more information on the issues raised in this article, please contact jason.phelps@michelmores.com