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On 1 December, the Scottish Outer House handed down its judgment in Lightways (Contractors Ltd) v. Inverclyde Council.
The judgment is significant as it is the first time a UK court has used its statutory power to declare void a public contract that had not been concluded in accordance with the public procurement rules.
The public procurement rules have been put in place to ensure that before public bodies make significant purchases from the private sector, they must first advertise the opportunity and hold a competitive tender process.
The ensuing contract must be awarded to the bidder who is adjudged the most economically advantageous tenderer.
Where the rules are breached, an aggrieved party may go to court to seek a variety of remedies, including damages, an injunction or an order to overturn a decision made by the public body.
In law, there also exists a statutory power to have a signed contract declared ineffective for particularly serious breaches, including “illegal direct awards” where no prior advertisement or competition has taken place in defiance of the rules.
Whilst this possibility has existed in statute, since 2009, there had been no previous case where the provision had been exercised.
This case involved a challenge brought under the Public Contracts (Scotland) Regulations 2012 (“Regulations”) against the award of a certain contract under a framework agreement. These rules are very similar to the equivalent procurement rules applicable in the rest of the UK, the latest version of which is set out in the Public Contracts Regulations 2015.
The procurement rules lay down special rules for framework which are intended to introduce some flexibility into procurement.
Provided the framework has been concluded in accordance with the public procurement rules (usually including a prior advertisement and competitive tender), the purchaser is entitled to award a series of contracts corresponding to individual requirements, as and when these arise.
These individual contracts can be awarded without the need to advertise and evaluate competing bids in order to decide the winner (although sometimes the buyer may conduct a “mini competition” without an advertisement between some or all of the parties to the framework).
In this case, the award in question occurred on 3 September 2015 and related to a call-off contract awarded by Aberdeen City Council to Amey Public Services LLP (“LLP”) under Lot 9 of the Crown Commercial Services Framework Technology Contract RM 869 – Lot 9 Street Lighting Service (“the Framework Agreement”).
The claimant was a competitor, active in the market for street lighting services in Scotland.
As the claimant pointed out, LLP had not originally been awarded a place on the framework arrangement.
Whilst a company in the same group as LLP had originally was a party to Lot 9 on the Framework Agreement, this did not entitle the purchaser to purchase directly from the LLP without any advertisement or open competitive tender.
The claimant further pointed out that in substance as well as form, the LLP was a very different type of organisation from the other member of the Amey group which held a place on the framework. The two had different management teams and resources at their disposal, as well as differing business models.
The judge agreed with these submissions. He noted that Regulation 19(3) of the Regulations provides that “where the contracting authority awards a specific contract based on a framework agreement, it must….apply those procedures only to the economic operators which are party to the framework agreement.”
Here, the defendant had broken the nexus with the Framework Agreement by awarding the call off to LLP. Technically this was a new public contract which could only be concluded in accordance with a prior advertisement and competitive tender under the procurement rules.
As no such steps had been taken, it was appropriate to declare the contract ineffective.
The judge also rejected arguments by the public body defendant that the declaration of ineffectiveness would be disproportionate, as it had made a simple error and did not deserve such a harsh sanction as to have the contract declared null and void.
We understand that the defendant has announced its intention to appeal the judgment. For that reason, the contested call-off contract will remain provisionally in force pending disposal of the appeal.
Whatever the outcome of the appeal, the decision serves as a stark reminder of the need for compliance with the procurement rules on the part of both public buyers and suppliers.
In this case, the award could possibly have been safeguarded from challenge by ensuring that the relevant group company signed up to the call off. From the perspective of contractors, ensuring compliance can protect the significant investments they make in tendering and ensure they reap the return to which they are entitled.
This article was written by Paul Henty.
For more information please contact Paul on +44 (0)20 7427 6506 or at firstname.lastname@example.org