After a difficult start, the public sector has a good record of complying with competition law. Cases like Harmon are exceptional, and, in any case, European law is about to change.
Robert Akenhead has comprehensively examined the court's ruling against the Parliamentary Works Directorate, the public sector body responsible for the new parliamentary building. The PWD was found, embarrassingly, to be guilty of failing to treat Harmon equally or fairly, guilty of unlawful post-tender negotiations, guilty of breaching an implied tender contract, guilty of failing to identify or rank the criteria to be applied in the tender selection, and guilty of the tort of misfeasance in public office.

Does this reflect the general standard of compliance by the public sector with the EC procurement rules, or is this an isolated case? Will it open the floodgates for successful litigation by suppliers or will most claims fail? The PWD was well aware of the EC procurement rules and advertised the cladding contract in the Official Journal. But, despite the fact that the rules on public works have been in place since the early 1970s, the sectors to which they apply do not always recognise their application. For example, certain projects more than 50% funded by the public sector are covered.

On other occasions, it was not appreciated that, since 1993, the requirement to advertise extends to "services" as well as to "works", so that contracts for maintenance and repair of vehicles and equipment, accounting, architectural services and property management services are now all required to be advertised.

And the uninformed frequently overestimate the thresholds. These are not huge. For the procurement of services by public sector bodies, the threshold is £200 000, and, in the case of central government bodies, it is £130 000. For works, it is £5m.

Problems often arise when a project is uncertain because of planning or funding issues. Then the requirement to advertise in the Official Journal would seem unnecessary, particularly if the early design services required are well below the thresholds. But this overlooks the prospect that the design fee for the whole project may well be above the threshold. If the project is advertised only when the project becomes certain, it is hard to see how a fair tender process can be operated when one of the tenderers has already had a period of involvement on the project.

Sometimes, where the Official Journal notice is successfully placed, mistakes are made in stating time limits, the narrowly defined prequalification criteria, or, often more importantly, an adequate description of the project. The result can be that shortlisted bidders prequalified for a different project. Solution: start again.

Typically, public sector works and services procurement cannot involve negotiated procedures. This lack of flexibility is extremely problematic and frustrating for the public sector client. Most public sector bodies find enormous difficulty in complying with the need to restrict post-tender discussions to "clarification", which is permitted, rather than "negotiation", which is generally not. What is the distinction? If the price for a particular element looks high, is a request that an individual tenderer re-examine it the clarification of an error or is it renegotiation? Is discussion about proposed amendments to the tender conditions that results in compromise clarification or negotiation? If the usual meaning is attached to these terms, there is truly little scope for discussion at all.

Public sector bodies will be relieved when the proposed reforms of the EC rules go through. These will enable the public sector to engage in "competitive dialogue".

In relation to the award, the requirement is to select on the basis of lowest price or the most economically advantageous tender (MEAT). Most of the public sector does not seem to go in for the ad hoc and arbitrary application of this MEAT test, which seems to have been applied by the PWD. In particular, the PWD made the error of not explaining MEAT, as it was required to do. Failure to do so meant that the lowest-price criterion applied by default, and this seems to have made it easier for Harmon to establish the causal link between the PWD's infringement and Harmon's loss.

The causation test was also softened for Harmon by the requirement of EC law that the remedy be effective, but that there should be limits to how far such a principle can be pushed. In truth, forms and questionnaires completed on many projects are perhaps more voluminous than they need be, and the scoring system is treated with a rigidity that might not be appropriate. They are particularly ill adapted to selecting a design consultant, where more nebulous factors may come into play.

The public procurement rules have not often been enforced in the UK: many breaches pass undetected. Also, there is the reluctance to bite the hand that feeds. There is a tight three-month timescale for a contractor to bring an action under the UK implementation of the EC rules. By allowing Harmon's complaint on the grounds of breach of implied terms under an implied contract created by the tender procedures, the court has radically extended these. The usual six-year limitation for contracts would apply.

Problems do not stop with a contract award and expiry of limitation periods. Difficulties can arise in relation to variations of contracts: can the original contract be extended by agreement or is the extension a new procurement requiring a new procurement procedure be implemented? The procurement rules themselves allow some flexibility here.

And what about the new Egan agenda of partnering methods to achieve best value in both public and private sectors? This will be difficult to achieve in public sector procurement so long as negotiated procedures are the exception not the rule. Roll on the proposed EC reforms and competitive dialogue.

We have concentrated on where slip-ups occur. But in fact Harmon is an extreme and unusual case. Awareness of the rules and of the compliance obligations in the public sector has risen considerably in recent years, largely thanks to the introduction of a statutory bid protest remedy. Cases like Harmon will only continue the trend. The public sector generally does (more or less) manage to comply.

Where the public sector can go wrong:

  • Failing to realise that the contract is over the threshold for advertisement in the OJ
  • Failing to realise the law applies to services
  • Failing to adequately describe the project
  • Negotiating price after the tender is accepted