Public investment in big infrastructure is good news for construction but procurement processes leave losers as well as winners. What happens if a firm chooses to challenge the decision?

Train tracks

Source: / Darren Grove

Will investment in infrastructure like railways lead to more challenges on public sector contract decisions?

Liz Jenkins

This month’s Budget and the government’s industrial strategy both mark the start of a fresh wave of public investment in UK infrastructure. High profile, high value and long-term construction contracts are the order of the day, which means public procurement will also take a centre stage.

The EU procurement regime requires all public bodies to offer contracts for services, supplies or works over a certain value to the market across Europe, and to comply with the Public Contracts Regulations 2015. The current procurement rules have been in force since February 2015 and it is fair to say that the regime has a mixed reputation among both contractors and buyers. Examples of common complaints are long, expensive competitive dialogue processes and complex rules on changes to contracts that have been awarded.

Some of the most successful big procurements we have seen are those where the procuring authorities actively manage the process and use every opportunity to drive down cost for contractors. Practical strategies include limiting the scope of dialogue or negotiation to core aspects of the project, or using “term sheets” to proactively drive negotiations forward. Thinking early about how to streamline the process, both from the buyer and contractor perspective, has benefits all round.

And one of the truisms of procurement is that there is always at least one losing bidder, and there are strong legal remedies for unhappy contractors looking to challenge. The remedies rules have helped to generate a huge increase in the number of legal challenges being brought in procurement, and many issues are also dealt with “behind the scenes” and out of the public scrutiny of the courts. High-profile public examples of complaints include procurement litigation over Eurostar’s purchase of rolling stock, the Nuclear Decommissioning Authority’s contract for decommissioning of 12 nuclear reactors, and Mace’s recent concerns about the procurement of the £170m HS2 contract.

Most often, legal challenges in projects arise at the end of the process. Commercially, contractors have invested heavily and “at risk” in terms of time, advisory fees and design work. They are often dissatisfied with the reasons given for the outcome of the process. Bid teams themselves are increasingly under pressure from management to seek further information about the outcome, and to take further action if they are not satisfied.

Once the process has been completed, the rules require that all participants be provided with certain information about the award decision. A minimum 10 calendar day “standstill” period must be followed before the contract can be awarded, and all unsuccessful bidders are entitled to be told why they were unsuccessful.

Commercially, contractors have invested heavily and ‘at risk’. They are often dissatisfied with the reasons given for the outcome of the process

Once the standstill period has started, the contract award can be suspended by a legal claim in the High Court. This is a quick and relatively low cost way for a contractor with concerns about a procurement to derail the award of the contract. Across the market, we are seeing an increase in automatic suspension claims. The challenger does not need to provide details of the suspected procurement breaches at the time of issuing the claim. The automatic suspension will stay in force until the claim is either withdrawn by consent, or there is a court hearing where the authority will apply to have the suspension lifted.

We also see increased procurement challenge activity amongst losing bidders at earlier stages, such as pre-qualification. The exclusion could mean that there is no further opportunity to become involved in a long-term project. Faced with being “locked out” altogether, increasingly contractors may come to the conclusion that there is nothing to lose by challenging.

Claims vary from breaches of the procurement rules (such as failures to ensure transparency or non-discrimination), to so-called “manifest error” type claims. These focus on mistakes made by the authority, typically, in evaluating tenders, the criteria used or the approach to moderation of scores. In a complex infrastructure project, evaluation criteria are likely to be equally complex, and it is essential that authorities have appropriate expertise to properly undertake scoring. Other claims under the rules could include conflicts of interest, breaches of confidentiality or making significant changes to existing procured contracts that go beyond what the law permits.

Often, the authority will hold all of the relevant information about how it has arrived at the outcome. The contractor is at an inherent disadvantage as the authority may seek to withhold information about the procurement. Practically, using tactics to obtain information as early as possible (under “specific disclosure” rules) can help a contractor to build its case, and authorities can seek to withhold information to limited individuals or groups.

One of the 10 pillars of the government’s industrial strategy is to “improve procurement”, and this could mean a reduction in the number of challenges. Any significant reform to the procurement regime post-Brexit seems unlikely, but there is still scope for public authorities and contractors to improve the process. This will be needed to help the government deliver its ambitious plans for UK infrastructure.

Liz Jenkins is a partner in Clyde & Co