Procurement pay-offs – the unavoidable outcome of the Government’s refusal to meet tender costs?

PLC Public Sector reports:

There has been a great deal of doom-laden discussion about the new remedies directive which is due to come into force at the end of 2009.  This is understandable as the directive may have a significant impact on public procurement in the UK by removing the sanctity of contract.  However, practitioners should be aware that public procurement case law in the UK has been developing rapidly over the last few years without the need for any actual assistance from Europe. Two recent stories in particular caution against assuming that the courts are waiting for the directive to come into force before getting tough in respect of flawed procurement processes or that remedies are something to worry about in 2010.

Duncan Osler of MacRoberts LLP recently reported for PLC Public Sector on the first.  In the case of Aberdeen City Council v DR Plumbing, the court made it clear that it did not need to wait for the new remedies directive to come into force in order to find that a contract was void due to a failure to observe the standstill requirements.  The second story is that of Bristol City Council (BCC), which agreed a settlement of £800k with an unsuccessful bidder that had threatened to launch legal proceedings on the basis that BCC had operated a flawed procurement process. The project in question was a £21 million leisure facility development.  In agreeing the pay-off, BCC were keen to make it clear that it did not accept there were any irregularities in its tender process and that it would have been able to defend any claim, stating:

“We vigorously deny there has been any fault in the procurement process.” 

BCC stated that it had agreed the pay-off on the basis that any court proceedings would cause huge delay and ultimately cost BCC more than the settlement, or worse, de-rail the project completely. This was therefore purely a practical decision.

BCCs decision raises some interesting questions:

Can they really have had a watertight case and still agreed the pay-off?

Possibly, however, public procurement is generally not a precise science.  It is readily accepted by most, if not all, leading procurement practitioners that if you hold any procurement process up to the light, you are likely to find that certain aspects could possibly provide the basis for a challenge (although not necessarily a successful challenge). This is likely to have been the case in this instance.  If the process had truly been inscrutable, the obvious option would have been to call the contractor’s bluff by informing them of a date on which the contract would be signed and daring them to seek an injunction (which presumably the contractor would not have, or if they had, they would have failed).

Is a £800k settlement an acceptable use of public funds? 

Whatever the real facts behind the pay-off, the decision is undoubtedly a practical one.  It has saved time and in all probability money.  However, something about it does feel a little wrong.  This feeling is magnified if either BCC is not culpable at all (in which case the contractor has been given £800k for the cost of a few letters without substance) or if BCC is definitely in the wrong (which would mean that BCC were advocating bad procurement practices followed by a large cheque to make up for it and keep it quiet – surely it would be better to re-run the process properly?).

So, is there a better way?

Even though it feels wrong, the arguments in favour of BCC’s actions are strong.  However, does such a settlement set a precedent?  Are more and more unsuccessful bidders going to be given pay-offs?  Is there not a better way in which this problem can be addressed?  The answer may lie in regulation 18(29) of the Public Contracts Regulations 2006, which states:

“The contracting authority may specify that payments may be made to a participant in respect of the participant’s expenses incurred in participating in the competitive dialogue procedure.”

Although this regulation exists, there is no doubt that the Government remains opposed to a general approach of public authorities meeting failed bidders’ tender costs.  However, this is exactly what has happened through the back door in Bristol (although apparently the £800k does not even cover the actual bid costs of the relevant contractor).  Surely it is time to accept that tendering for contracts under the competitive dialogue procedure is a costly business that the private sector alone cannot be asked to fund.  It would be far better to accept that the public purse should meet some of these costs on the basis that such a strategy would avoid many of the claims that are now being made, and the time and money they inevitably cost to defend, something that BCC has managed to avoid in this case.

One thought on “Procurement pay-offs – the unavoidable outcome of the Government’s refusal to meet tender costs?

  1. So many issues raised here but I wanted to comment on the point about local authrorities contributing to bidders’ costs. In my experience, the CD procedure is excellent but can allow for inadequate preparation by the contracting authority as it relies too heavily on the private sector to determine what issues are up for negotiation. If the authority has to bear some or all of these costs, one would hope it would focus the mind on what can be done in-house rather than throwing it all open to the market. This may shorten the whole process too. For smaller value procurements, it would also contribute to the SME agenda by ensuring smaller bidders are not put off from bidding.

    That said, I don’t think contributing to bidders’ tender costs would reduce challenges given that most challenges are for loss of profit not wasted tender costs.

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