UK public procurement: Are you in or out? Catherine Wolfenden - Osborne Clarke 04/05/2010 The European Commission has recently announced that it is embarking upon a comprehensive evaluation of EU public procurement legislation, to be completed in spring 2011. The findings will be used to decide on the need for modernisation of EU procurement rules. For those involved in large scale infrastructure procurements carried out under competitive dialogue, the right sort of 'modernisation' of the process would be welcome. The competitive dialogue process is still expensive and the bidding market is sensitive to bid cost risk. In the more commoditised sectors there is still an issue in relation to a lack of dialogue on project specific issues, with a slavish adherence to standard form documentation without full appreciation of very relevant project specifics. Until such time as legislative change does take place, the private and public sector are stuck with trying to fit complex infrastructure projects into the existing rules. Plenty has been written on the implementation of the remedies directive. In addition to this significant legal development, there are two other areas of current change which those involved in public procurement projects must be aware of: The potential for mandatory exclusion of suppliers, contractors and service providers from all public contracts When challenges to a procurement process can be brought Mandatory Exclusion The Public Contracts Regulations 2006 ("the Regulations") include a mandatory requirement for contracting authorities to exclude suppliers, contractors and service providers from public contracts where they have been convicted of certain offences. These offences include: bribery corruption money laundering fraud This is a new provision. Previously exclusion for any criminal conviction was at the discretion of the contracting authority. If the company hoping to bid for a contract, or any of it
directors, or any other person who has power of representation, decision or control in that company, is convicted of one of the offences listed at regulation 23, the contracting authority must not allow that company to continue to bid. The only exception to this if there are "overriding requirements in the general interest", which means the most serious of circumstances, for example in the case of a national emergency. Of most concern for companies contracting with the public sector is the fact that corporate convictions do not currently become 'spent' (i.e. spent convictions are those which are considered no longer live, because of the period of time which has elapsed without the individual incurring further relevant convictions). If a company is convicted of an offence that requires mandatory exclusion it is likely to result in permanent exclusion of that company from public procurement contract opportunities. New offences under the Bribery Act 2010, which received Royal Assent on 8 April 2010, should ring serious alarm bells with all companies that contract with the public sector. It is likely that the Act will come into force by the autumn, if not earlier. The Act contains four main offences, the first making it illegal to offer a bribe, and the second making it illegal to accept a bribe. There is also third offence of bribery of a foreign public official. If any of these offences are proved to have been committed with the consent or connivance of a senior officer of a body corporate, that person, as well as the body corporate, is guilty of an offence. The fourth offence is the new corporate offence under which a commercial organisation will be liable if it fails to prevent bribery from being committed in connection with its business by persons performing services for it. A commercial organisation will only have a defence if it can prove that it had put in place adequate procedures designed to prevent such persons from committing bribery on its behalf. The Bribery Act has very wide territorial scope. The general bribery offences apply to acts of bribery committed anywhere in the world by companies incorporated in the United Kingdom as well as individuals where British Citizens are ordinarily resident in the United Kingdom. Therefore any company with a footprint in the United Kingdom needs to ensure that it applies with the provisions of the Bribery Act. An example of how this might work in practice is as follows: Company "T", a UK waste disposal company, a UK company, wants to build a new energy from waste plant in Vietnam. In line with local practice, T employs a local intermediary to assist and maintain all the necessary permissions. Without the T's knowledge the local intermediary pays bribes to Vietnamese planning officials in order to obtain planning permission. Under the Bribery Act, T would be liable for the corporate offence of failing to prevent bribery unless it could show that it had put in place adequate procedures to prevent bribery.
With such a conviction, a contracting authority would have to exclude T from any procurement. As T's conviction will never become spent, it will potentially face permanent exclusion from contracting with the public sector. Procurement Challenges There have been several high profile cases recently of large infrastructure projects being affected by legal challenges, or the threat of them. In March 2010, Buckinghamshire County Council took the decision to take a step back in its competitive dialogue process for a long term residual waste treatment contract. Covanta were appointed as preferred bidder in September 2009. The Council said that an issue associated with legal constraints on Rookery Pit in Bedfordshire selected by Covanta for the development of a 390,000 tonnes a year capacity energy from waste treatment facility had impacted on the commercial aspects of Covanta's bid. Presumably, this meant that Covanta's bid no longer represented the most economically advantageous tender when assessing it under the stated evaluation criteria. The Council was clearly concerned that if it continued with the competitive dialogue process negotiating only with Covanta, it was at risk of a legal challenge from one of the other bidders who had already been down selected during the competitive dialogue process. The cost of going back a stage to re-open negotiations for both the Council and Covanta will not be insignificant in terms of advisers' costs. Further, it will be even longer before the contract is awarded. Bristol City Council recently took a different decision in relation to their leisure infrastructure procurement. DC Leisure Management, a consortium that had not been awarded the contract, threatened to bring legal proceedings against the Council in relation to breaches of the Regulations. The Council decided to settle with the consortium and paid out 800,000 rather than risk a legal challenge which might have delayed the contract award for many months with a risk that Government funding might have been lost. The settlement represented approximately 1% of the lifetime cost of the project. The first hearing in SITA UK's legal challenge against Greater Manchester Waste Disposal Authority (GMWDA) in relation to its 3 billion waste PFI has taken place. The judgment (SITA v GMWDA [2010] EWHC 680) addresses the hot issue of how long a bidder has to issue a claim against a contracting authority for a breach of the Regulations, before it loses the right to challenge. This was the first time a UK court has considered the judgment of the Court of Justice of the European Union (CJEU) in Uniplex (Uniplex UK Ltd. v NHS Business Services Authority (C- 407/08), unreported January 28, 2010). Prior to this judgment the limitation period was that a claim must be brought promptly and in any event within three months beginning with the date when ground for proceedings first arose.
The CJEU in Uniplex clarified that: It is necessary to have an effective review of decisions of contracting authorities in a time limit that complies with the European Community requirement of legal certainty. The CJEU held that a requirement to act promptly was not certain. An effective review procedure must require the limitation period to run from the date on which the aggrieved bidder knew, or ought to have known, of the alleged infringement of the Regulations. SITA v GMWDA was the first case where the Uniplex judgment has been applied to the UK Regulations as they are currently drafted (the OGC has said that they are going to be amended in light of Uniplex). In his judgment, Mr Justice Mann said that the level of knowledge required to start the three month limitation period running is one of facts that "apparently clearly indicate, though they need not absolutely approve, an infringement" of the Regulations. In this instance it was held that SITA's claim had been commenced outside the three month limitation period. SITA, which is owned by Suez Environment, is appealing the decision to the Court of Appeal. Until the Appeal is decided, the prudent position for a bidder concerned about a potential breach of the Regulations during the course of a procurement is to ensure that (even if they are not sure whether they will suffer any loss as a result of the breach of the Regulations) a claim form is issued in the High Court within three months from the date when suspicions were first aroused. Conclusion As well as the European Commission's review of EU procurement legislation taking place, the UK Treasury is at the moment engaging informally with stakeholders to discuss the competitive dialogue process, where it is going wrong and why. Although a major positive for the public sector out of the competitive dialogue process is that the quality of the agreed contractual documentation at financial close is quite high, the downside is that for a bidder coming second is getting too costly. Hopefully, both reviews will therefore take on board the high cost of the competitive dialogue process. It is still a more expensive process overall than the old negotiated procedure and the result is that for some projects there are still relatively few bidders. However, the Commission has said that any changes should not come at the expense of "transparent and contestable procurement markets". In any event, any change is some way off. In the meantime it is up to the public and private sectors to work with the law as it stands. We recommend everyone involved seeks out specialist advice so that they fully understand the Regulations which set out the legal road
map for a procurement. Only then can the risks and opportunities at each stage in the process be used to get the most out of an imperfect system. Catherine Wolfenden is a senior associate at law firm Osborne Clarke. She has over six years of experience in advising both public and private sectors on regulated procurement. Wolfenden focuses on compliance with UK procurement regulations and the wider EU treaty principles, as well as associated legislation, including FOIA, and public law issues, including judicial review. She also provides strategic, tactical and litigation advice in relation to procurement challenges. This article was first published by the Infrastructure Journal on May 4, 2010. An online copy of the feature may be seen here.