Receiving compensation for being wrongfully refused a contract is not to be sniffed at. But it will usually be much more satisfactory to obtain the contract in the first place. Under procurement regulations such as those in the Harmon case (the Public Works Contracts Regulations 1991), it is possible for the court to prevent an authority from entering into a contract in breach of the regulations.
The court may, “if satisfied that a decision or action taken by a contracting authority was in breach of the duty owed”, either “order the setting aside of the decision or action, or order the contracting authority to amend any documents, or award damages to a contractor who has suffered loss or damage as a consequence of the breach”. But if the contract has been entered into already, then the only available remedy is damages. Thus, if an aggrieved contractor wants to get the contract itself, rather than damages, it has to act quickly.
This procedure was considered by the Court of Appeal in Ealing Community Transport Limited vs London Borough of Ealing (unreported, 27 July 1999). The council had invited tenders for transport provision in Ealing. It decided to give the contract to Brown and Root. Ealing Community Transport complained of various breaches of the relevant regulations. It applied to the court under the regulations for an interim order suspending the procedure leading to the award of a contract. If the council had not yet made a contract with Brown and Root, the court could prevent it from doing so if the regulations had been breached. But if a contract was already in existence, the only remedy available would be an award of damages.
Speed is needed to challenge the impending placement of a contract. A recent European Court judgment, however, suggests that more time should be allowed
The debate before the court was whether or not the council had in fact already made the contract. Although formal contract documents had not been drawn up and sealed, the council had in correspondence accepted Brown and Root’s tender. The court held that a suspension order could not be granted as a contract had been made. If bad faith had been shown on the part of the council and Brown and Root, it might have been possible to apply for the contract to be set aside on judicial review. But bad faith was not even alleged.
The procurement regulations and their interpretation by the Court of Appeal make it difficult for a disappointed contractor to obtain a suspending order and to force the contracting authority to comply with the regulations. If there is little time between the decision to award the contract and the formation of the contract, it is likely that any recourse to the court will be too late, save for damages.
However, a recent judgment of the European Court of Justice raises the possibility that the UK regulations, as construed by the Court of Appeal, do not accurately implement the relevant community directive 89/665. In the case of Alcatel et al (unreported, 28 October 1999) the court held that the directive was to be construed as meaning that member states had to ensure that a contracting authority’s decision before the formation of the contract was open to review and, if necessary, to being set aside if non-compliant. It also held that if that right of review was not available, those affected might be able to seek compensation from the relevant member state. As things stand with the UK regulations, the availability of such a right of review seems to depend on the speed with which a contracting authority makes the contract. That hardly seems to accord with the approach of the European Court. The UK regulations may need amending.
Tim Elliott QC is a barrister specialising in construction for Keating Chambers.