PLC Public Sector reports:
Public procurement litigation, as we often state, is on the rise. Rarely a week goes by without a new case highlighting an issue that impacts on how public procurement processes should be run. Taking account of these issues is of huge importance, with the risk that legal proceedings could stop an award process, potentially costing large sums of money and impacting on service delivery. However it is important that the focus on the process does not lead to the substance of any public procurement – the contract – being neglected.
In this post, we highlight two recent cases that may not necessarily have had the highest profile in the public sector but from which important lessons can be learnt.
“Indeed, it is a matter of some astonishment that a responsible local authority could enter into contracts concerning arrangements that were potentially of considerable financial significance on the basis of documents in this form.”
The words are Mr Justice Roth’s, the responsible local authority is Westminster City Council. The quote comes from the judgment in Westminster City Council v Urban Wimax Limited, a dispute about how contracts relating to the provision of wireless broadband services should be interpreted. The specific facts of the dispute are not important to the lesson that is be learnt here, namely, that no matter how innovative or unusual a relationship may be, the principles of good clear contract drafting should not be overlooked. This applies to both:
- The operative provisions – if a document is intended to contractually bind the parties to it, whether it is called a contract, memorandum of understanding or anything else, it should be subject to the same drafting rigours and requirements for legal review and advice as any normal contract.
- The specification – all too often care will be taken over the operative provisions only for the specification to be drafted, or just inserted from a tender document, at the last minute by someone who has had nothing to do with drafting the contract. What the parties are agreeing to purchase/provide is the single most important element of any contract. The obligations must be set out clearly and reviewed by someone other than the person who drafted them to check they make sense prior to any contract being entered into.
Moving from a case that has obvious application in the public sector to one that may not at first glance appear as relevant, the recent decision in Kingsway Hall Hotel Ltd v Red Sky (Hounslow) Ltd. This case concerned the enforceability of a software supplier’s exclusion clause. The clause in question:
- Was contained in the supplier’s standard terms.
- Sought to exclude the statutory implied terms as to satisfactory quality and fitness for purpose.
- Was held by the court to fail the reasonableness test set out in sections 6 and 7 of the Unfair Contract Terms Act 1977.
The obvious interest in this case is for public sector purchasers who may want to use it to argue against requests for similar protections sought by their own IT suppliers. Less obvious is the importance of ensuring that a public authority’s own standard terms do not fall foul of a similar judgment.
Unless a public procurement is complex enough to justify the use of the competitive dialogue procedure, public sector purchases will generally be made on an authority’s standard terms and conditions. Suppliers are often given little or no opportunity to seek amendment to these terms and, particularly if it is a smaller supplier trying to access the public sector market, it is likely that the balance of bargaining power will rest with the public sector purchaser. Add to these facts that a review of many sets standard terms used by public authorities will reveal them to be heavily slanted in the public authority’s favour (often unreasonably so) and there may be a problem.
In light of judgments such as this, it is important that all public authorities review their standard terms to ensure that if they were called into question they could be defended as being reasonable (obviously while still providing the authority with the protection it needs!). To help in this process, we will shortly be publishing a number of new standard documents, including:
- A new services agreement specifically for use by public sector bodies.
- A non-binding memorandum of understanding for use by two or more public sector bodies wanting to work together.