Challenges to public contract awards are rising - and judges are stepping in where regulators have failed to tread

Public procurement accounts for about 20% of the UK’s GDP. As many of us predicted (see, for example, Building, 28 November 2008), challenges to public contract awards have risen over the past few years. It seems that short-term financial need is increasingly outweighing disappointed bidders’ reluctance to bite the hand that feeds them.

The EU rules which apply in the UK are some of the most detailed and strict of any of the international public procurement regimes. While much is written about the UK’s public procurement regulations, little is said about how the courts have enlarged the scope for challenges. Recognition has, though, rightly been given to the excellent, speedy, service that the courts provide in dealing with challenges.

The regulations dictate who may be challenged (essentially public and quasi-public bodies, such as utilities) and by whom. They also dictate when and how challenges may be brought, on what grounds and what relief is available.

However, the courts have developed grounds for challenges beyond those stated in the regulations. For instance, even where an authority treats bidders equally and transparently its assessments may still be challenged where it commits a “manifest error”. This allows challenges where, for example, an authority fails to evaluate a bid correctly against the relevant criteria.

Short-term financial need is increasingly outweighing disappointed bidders’ reluctance to bite the hand that feeds them

Over the last year or so there are signs that the courts will permit challenges even further - beyond what the regulations expressly contemplate - in ways that had previously been thought impossible. The courts’ powers of judicial review of many public and quasi-public bodies’ decisions are being brought to bear. The use of these powers was seen last year when the courts quashed the government’s decision to halt various Building Schools for the Future projects (although the government later essentially repeated its decision by withholding funding). This was a temporary victory for authorities which are more used to judicial review being used against them.

Judicial review widens the scope for challenging contracting authorities, upon grounds such as irrationality. While authorities have a discretion as to the criteria they apply to bids (so long as the criteria and any sub-criteria and weightings are disclosed to all bidders), judicial review allows attacks upon the criteria themselves, in ways that the regulations do not envisage.

The applicant need not be an aggrieved bidder and it does not take much for them to show the necessary “standing”; for instance, a subcontractor of a bidder that loses a public tender might have the right to challenge the process (although it may be a rare case where they would in fact do so). A much wider class of complainant is empowered than aggrieved actual or potential bidders, who are the only complainants that the regulations recognise.

When would this matter? One occasion may be if an aggrieved bidder’s challenge under the regulations is not within the new 30-day time limit for England and Wales. An applicant other than the bidder (such as a shareholder or director) may still be in time for a judicial review, for which prompt action within three months is required.

Another occasion would be if the challenged contract has been concluded. The possibility of quashing an awarded contract is likelier by judicial review. Under the regulations, once a contract has been awarded (following a 10-day standstill period) it will not generally be set aside, unless there has been a particularly gross breach of the rules or it is a framework agreement (the courts have decided that the latter are more liable to be set aside than other contracts). Judicial review does not have the same limitations on setting contracts aside. Once a contract is set aside, the procurement process will usually be re-run unless, say, the authority decides not to proceed with the project.

Despite all this, judicial review does not increase an aggrieved bidder’s prospect of obtaining damages for wasted bid costs or lost profits on a contract that would or might have been awarded to it.

It would be wrong to suggest that the courts have only made challenges easier. For instance, the recent change to the regulations requiring authorities automatically to suspend a contract award, if it is challenged by litigation in the 10-day standstill period, has put an onus on authorities to seek court-clearance of the suspension. The courts have been forthcoming with lifting suspensions.

As for judicial review the Supreme Court’s latest addition in November questioned the lack of a coherent basis for court intervention. We may yet see a retreat.

The bases for challenging publicly procured contracts are in a state of flux. Tender processes seem more open to attack than ever before. At a time of balance sheet pressures, challenges seem only likely to rise further.

Rupert Choat is head of construction disputes at CMS Cameron McKenna LLP