Procurement law raises the stakes for public managers

A new European law gives contractors more power to get contracts scrapped if they can prove authorities didn't follow the rules. Along with deep snow and a raft of new year's resolutions, 2010 has brought an additional delight for public managers: a new law that raises the stakes for getting procurements wrong. The EU remedies directive, which came into force at the start of this year, promises to make life tougher for managers in the murky area of letting contracts with the private sector. As the Office of Government Commerce (OGC) makes clear in guidance issued last week, the main effect of the directive is to introduce something known as 'ineffectiveness'. Sounds harmless? Not really, because it increases the number of situations in which a contract that has already been let can retrospectively be scrapped. Until this year, a disgruntled contractor could get a procurement decision annulled – and the procurement re-run – only if it made its challenge before the contract was awarded. After the contract was awarded, the most it could get was a sum in damages. Now, a contractor has within six months of the decision to launch a claim against an existing contract. If the contractor can prove that the local authority did something wrong during the procurement, it can get the contract thrown out or, in technical terms, deemed 'ineffective'. So how can public managers avoid the dreaded ineffectiveness? The first key point is to openly tender everything that needs to be tendered. Part of the reason for the new directive is that the EU has become increasingly concerned about what are known as illegal direct awards, in which public agencies award contracts directly to a particular supplier rather than holding an open competition. One particularly nasty trap for public authorities lies in making major changes to existing contracts. Mike Mousdale, a partner with lawyers Eversheds, says many councils don't realise that any "material" variation needs to be separately, and competitively, tendered. "If an authority has a contract and makes a variation to that contract, [then] potentially that variation, in procurement terms, would be classed as a new procurement." Mistakes to avoid Other mistakes to avoid, lawyers say, include failing to make clear the criteria used to award a contract (or the weighting given to each criterion); or - even worse - changing criteria midstream. Above all, public managers shouldn't be afraid of giving contractors plenty of information. Authorities often feel that to do so is to give contractors more ammunition, but under the new directive, failing to communicate actually opens them up to more legal challenges. That point is made clear in the second part of the new directive, which deals with the time - known as the standstill period - between contractors' being told who has won and the contract's being signed. The EU has this matter in its sights because of a widespread feeling amongst contractors that authorities haven't been giving them a fair chance to challenge a decision before a contract is signed. Under the new directive, authorities must give contractors 10 days to challenge if the decision is communicated electronically, or 15 days if they send it in the post. They must also explain to all contractors the reasons behind their decision; previously, they did so only for those contractors that asked. Getting these 'standstill' matters right is important, and cuts both ways. It does give contractors more opportunities to challenge decisions. But, if public authorities properly observe the standstill period, the courts will look more favourably on them, and are much less likely to order that their contract be thrown out. Nonetheless, the overall effect of the guidance, Mousdale says, is to increase the damage caused to public authorities that get it wrong. "It requires the authority to look again at what they do in procurement and really satisfy themselves that they are getting it right and are not taking undue risks, because undoubtedly the stakes are getting a lot higher," he says. "While in the past, some of the authorities might have shrugged their shoulders and said, 'What's the worst thing that can happen?', suddenly if someone doesn't like what you do, they could be caught by the ineffectiveness remedy - and then the courts would have to strike it out." For more background on the new law click here