The three tendering procedures described are the open, restricted and negotiated procedures. The first two contain no means for negotiating with bidders, and a decision must be made based on documents submitted. Under the negotiated procedure, the authority negotiates the terms of the contract with one or more parties it selects.
It must publicly set out the criteria by which bids will be evaluated: either lowest price or most economically advantageous bid. Economic advantage can be assessed in terms of price, costs, technical merit or period of completion.
In PFI or public-private partnership projects in the UK, the government department or local authority usually specifies its objectives and seeks proposals from the private sector on how those might be achieved. The flexibility this gives is intended to achieve value for money – one of the most important criteria for PFI/PPP projects.
The relevant body reviews the proposals and selects the most suitable bidders, with which it negotiates terms.
The European Commission appears concerned about the negotiated procedures being used almost as a matter of course in PFI/PPP projects. The rules state that for utilities contracts any procedure can be used, but works or services projects should normally use the open or restricted procedure. The negotiated procedure should be used only in exceptional circumstances, where the contract does not permit prior overall pricing or – in the case of services – where it is not possible to produce contract specifications that are particular enough to comply with the open or restricted procedure rules.
The EC is concerned about the procurement procedures used in PFI/PPP projects UK public authorities may have to review their methods or risk a challenge
The UK Treasury has generally adopted the negotiated procedure in PFI/PPP projects. However, in the recent Pimlico School decision the EC said the negotiated procedures used in relation to the contracts for the redevelopment of the school contravened public procurement rules, because the scheme was not sufficiently complicated to merit the use of the negotiated procedure. The Treasury and other government departments and local authorities may now have to review their procurement methods or risk being challenged – if not by bidders, then perhaps directly by the EC.
In Germany, challenges to public procurement decisions on the basis of breach of EU rules are common. The procurement tribunal hears several hundred cases a year, and this is expected to increase in the wake of new rules enacted on 1 January 1999 to provide fast and effective remedies for such disputes.
The new rules are part of a German act of parliament against restraint of competition. Complaints must now be dealt with inside six months, including a decision by the procurement tribunal – a body to which the UK has no equivalent, having opted to use the normal court system – and, if necessary, one by the appeal court. The cost of making a complaint need not be great. The fee for a tribunal hearing is usually between DM5000 (£1540) and DM50 000 (£15 400), but in exceptional cases can fall to DM500 or be as high as DM100 000. Fees for an appeal court hearing are usually about 5% of the value of the contract. The burden of proof at the tribunal level is not high. The challenging party has to raise the issue and provide some evidence. The parties need not be represented by lawyers (although most are). A party has a right to see the authority's files – unless inappropriate for confidentiality reasons – making it easier to foresee what arguments might be raised.
Despite the high bid costs on PFI/PPP projects, the UK situation is very different. Between 1994 and 1998 there were apparently only 10 court decisions relating to breach of EU procurement rules. A major reason may be reluctance to bite the hand that feeds. In Harmon, directors of Harmon were warned that they would not be awarded any future contracts in the UK if they questioned the procedure in relation to Portcullis House. Even so, they pursued their complaint.
As the UK complainant has to go through the civil justice system, with its associated costs and burden of proof, it may think twice before embarking on the process. However, the new Civil Procedure Rules may to some extent alleviate these difficulties. In Germany, the existence of administrative courts where issues are challenged daily may encourage bidders to take action.
Jane Jenkins is partner in the construction and engineering group at Freshfields. This article was written with assistance from practice development lawyer Ashmita Garrett.