Much ink has been spilt on the thorny question as to whether and to what extent publication of a voluntary ex ante transparency notice (VEAT Notice) offers contracting authorities and utilities protection against a remedy of a declaration of ineffectiveness in the national courts. Indeed, on the procurement conference circuit, it is rare to find an event at which one or more speakers does not give his or her considered view on the effectiveness (or otherwise) of VEAT Notices as a mitigation strategy. However, until earlier this year there was little judicial precedent on the subject.
In this post, Warsha Kalé, Associate Director at Berwin Leighton Paisner LLP, considers the judgment in Italian Interior Ministry v Fastweb SpA.
To restate the issue: the publication of a valid VEAT Notice – setting out the contracting authority or utility’s justification for not conducting a new tender process before awarding a contract – will remove the risk of that contract being subsequently declared ineffective, where the relevant contract is not concluded before the expiry of a 10 day standstill period. However, the requirement that the VEAT Notice set out the justification of the decision to award the contract without prior publication of an OJEU contract notice (Regulation 47K(4)(iii) of the Public Contracts Regulations 2006, as amended) often leads to somewhat of a paradox in practice: if the justification for not advertising is robust, then the need for a mitigation strategy is less pressing. Conversely, contracting authorities/utilities should be less likely to publish VEAT Notices in respect of those ‘grey’ areas of procurement where a mitigation strategy would be most helpful, as to do so would – in principle, at least – be likely to expose them to a greater risk of challenge.
However, notwithstanding the above paradox, there has been a tendency (at least in the UK) for contracting authorities and utilities to publish VEAT Notices in circumstances where the purported justification is less than robust, particularly in respect of contract amendments – perhaps deriving some comfort from the fact that potential suppliers are not likely to monitor such publications, as well as the fact that, to date, no VEAT Notice has been challenged in the English courts.
Ministero dell’Interno v Fastweb SpA
Such bullish tendencies may however be reined in by the proceedings before the European Court of Justice (Court) in the Fastweb case (a preliminary reference from the Italian courts). The Advocate General’s Opinion delivered on 10 April earlier this year made it clear that the protection offered by the VEAT Notice from the risk of a declaration of ineffectiveness would only be available to the extent that the contracting authority/utility believed in good faith, and having exercised “requisite diligence” (including potentially taking legal advice where available), that the contract in question did not need to be advertised in the OJEU. Conversely, a deliberate and intentional infringement of the public procurement rules meant that the VEAT Notice had no immunity effect: in the latter situation, national courts should not be deprived of the possibility of declaring such a directly-awarded contract ineffective.
The Advocate General’s Opinion has been largely followed by the Court in its judgment dated 11 September 2014 (Case C-19/13, Italian Interior Ministry v Fastweb SpA). The Court acknowledged the need to balance the interests of an entity adversely affected by a potentially illegitimate direct award (who would need to have access to pre-contractual relief and possible annulment), with the need to avoid legal uncertainty. However, the Court found that it was key to the enforcement of the procurement rules that the decision to award the contract directly should be scrutinised by the national review body – in particular to determine whether the awarding authority had acted “diligently” and could legitimately hold that that the relevant conditions were in fact satisfied, bearing in mind the negotiated procedure without notice constitutes a derogation to the procurement rules, and should be interpreted restrictively.
The Court’s reasoning is couched in more neutral terms than the Advocate General’s Opinion: for example, the Court does not distinguish between errors committed in good faith and an intentional breach of the procurement rules. However, in our view, the practical impact will essentially be the same: we consider third parties are likely to be more incentivised to monitor the publication of VEAT Notices to ensure that they contain sufficient justification in respect of directly-awarded contracts of potential interest to such third parties; they may also be more incentivised to challenge those VEAT Notices which do not appear to do so.
In the absence of a legally robust justification, therefore, contracting authorities and utilities should be wary of issuing a VEAT Notice as the latter will certainly not mitigate, and may even increase, the practical risk of challenge to a directly-awarded contract. Additionally, the arguments that would be used to defend the publication of the VEAT Notice would in substance be the same as those employed in any action brought to declare the concluded contract ineffective – in that sense, the VEAT Notice is not so much a mitigation strategy but a pre-emptive strike!
As such, even where there exist valid reasons for directly awarding a contract, it would only seem to make sense to publish a VEAT Notice where the desire to eliminate any risk of challenge post-conclusion (clearly) outweighs the potentially increased exposure pre-conclusion through publicising the award, and the justification for not conducting a separate tender process may not be readily apparent to third parties.