The Public Contracts Regulations 2015 (SI 2015/102) (PCR 2015) not only transpose the public sector directive (Directive 2014/24/EU); they also include national provisions to support access to public contracts by SMEs. This blog considers what happens if a contracting authority breaches these purely national rules. Deliberate breach is unlikely, if for no other reason than the reputational risk. Accidental breach may happen because the national regime applies to a huge range of very low value contracts and responsibilities are often delegated across different parts of an authority.
Purpose of the national rules in Part 4 of the PCR 2015
The obligations in Part 4 of the PCR 2015 implement many of the recommendations of Lord Young’s report “Small Business: GREAT ambition”. The aim of the rules is to ensure:
- Businesses, especially SMEs, hear of public contract opportunities.
- Contractors and sub-contractors are paid promptly.
- Administrative burdens are reduced.
Extent of Part 4
The extra national rules are in Part 4 of the PCR 2015 and include slightly different obligations in relation to above EU threshold contracts and certain below EU threshold contracts. Part 4 does not apply to the procurement of health care services (for the purposes of the NHS (Procurement, Patient Choice and Competition) (No.2) Regulations 2013 (SI 2013/500)); nor to procurement by maintained schools and academies. Under devolved arrangements it will be up to the Welsh Government and the Northern Ireland government to make their own national regulations if they choose. The Welsh Government announced on 9 June that it too would introduce new regulatory power with effect from 12 August 2015.
Obligations imposed by Part 4
The English obligations in Part 4 are summarised in Practice note, Below threshold public procurement (Part 4, PCR 2015). They apply to contracts valued at £10,000 or more for central government authorities, and £25,000 or more for sub-central contracting authorities including local authorities and NHS Trusts. The obligations relate to:
- Extra advertising in Contracts Finder for all contracts advertised on OJEU and elsewhere.
- Extra notification of awards on Contracts Finder, including contracts awarded under frameworks.
- Restrictions/prohibitions on the use of pre-qualification questionnaires (PQQs).
- A requirement to include contract terms requiring contractors and sub-contractors to be paid within 30 days of an undisputed invoice.
Remedies for breach of Part 4
The normal remedies regime for breach of the public procurement obligations (within Part 3 of the PCR 2015) provides private law remedies for aggrieved bidders. It is expressly stated in regulation 85 to apply to contracts and frameworks within the scope of Part 2, that is, it can only ever apply to above EU threshold contracts. It is also logical to assume that the wording of regulation 85 suggests that the normal procurement remedies would not even apply to above EU threshold contracts that breach obligations only found within Part 4. Regulation 114 confirms that even if there is a failure to comply with Part 4, it will not of itself affect the validity of the contract that is awarded.
Given the lack of the normal procurement remedies, challenge would presumably come via the standard public law remedies. Before considering the relevance of these public law remedies it is helpful to look at the practical issues relating to the Part 4 obligations and whether a potential bidder is even likely to bother to bring a challenge.
Practical implications of a breach of the Part 4 obligations
There is an obligation to advertise lower value contract opportunities on Contracts Finder (regulation 110). That obligation (for central government contracts over £10,000 and local authority contracts over £25,000) does not however apply where the opportunity is not generally advertised. An authority permitted by its standing orders, for example, to seek offers only from three different suppliers for a contract worth up to £50,000 would not therefore trigger this obligation. This is confirmed in Procurement Policy Note 03/15. If the authority had advertised elsewhere (for example, on its website) but failed to advertise on Contracts Finder then it is difficult to see that this would provoke a challenge from an aggrieved bidder, particularly for a low value contract. What financial loss is caused? If it is a missed opportunity to bid, then this would potentially be a loss of chance action at best and such an action for the lost profit on a low value contract would not warrant the court fees. The same may be said of the obligation to advertise the details of awarded contracts on Contracts Finder (regulation 112) although here the financial loss is even harder to establish.
Perhaps there is more practical risk of challenge for the obligation in regulation 111(1), which outlaws a pre-qualification stage in a procurement of below EU threshold values. This is partially defined in regulation 111(4) to mean the stage of assessing suitability in order to reduce the number of those invited to proceed to a later stage in the process. This therefore means that “suitability” can still be assessed (confirmed in regulations 111(5) and (6)) in order to assess the ability to deliver a contract; just not in a conventional two stage process. This pushes authorities to the use of a modified form of the “open procedure” where ability is assessed alongside the priced tenders. However, if an authority genuinely excludes a candidate who is “unsuitable” to perform the contract it is again difficult to see what financial loss that candidate has suffered. Regulations 111(7) and 111(8) indicate that contracting authorities should “have regard to” guidance issued by Ministers and report a “deviation” from that guidance. Those obligations to “have regard to” are discussed below in the context of a potential judicial review challenge.
In the case of contracts that are above EU threshold levels, similar obligations apply but in the case of “qualitative selection” the obligation in regulation 107 does not prohibit a qualification stage, instead authorities must “have regard to” guidance, for example guidance on PQQs. Guidance was issued shortly after the 2015 regulations were published. Annex 1 contains statutory guidance and there is also a standard form PQQ. Use of this standard form is linked to the “Mystery Shopper” service. This service was strengthened by section 40 of the Small Business Enterprise and Employment Act 2015 (on which see Procurement Policy Note 09/15 of 1 June 2015).
The Part 4 obligations with regard to contractual terms are in regulation 113 and require payment of undisputed invoices within 30 days. Again this is supported by an obligation to “have regard to” ministerial guidance (regulation 113(4)). This provision protects contractors by deeming the provision to be included as an implied term, even where it is not (regulation 113(6)). Therefore again it is difficult to see how a bidder/contractor can be adversely affected financially even if the obligation is not directly met because the implied term would still exist.
Judicial review: failure to have regard to the guidance
We therefore need to look at the potential for public law challenge, of which the most likely is judicial review (see Practice note, Judicial review: an introduction). The phrase “have regard to” appears in other legislation. It appears for example, as “have due regard to” in section 149 of the Equality Act 2010 (the public sector equality duty) and it appears in the long-title of the Public Services (Social Value) Act 2012. In both of those statutes, further explanation appears within the relevant statutory provisions as to what is expected.
In R (Greenwich Community Law Centre) v Greenwich LBC  EWCA Civ 496, an unsuccessful challenge was made to a procurement decision arguing breach of section 149 of the Equality Act 2010. The Court was clear that they could not micro-manage the decision of the local authority and what was necessary was for them to be clear that the local authority’s officers, and the Members, were alive to each of the needs in section 149 and had the specific statutory considerations in mind when decisions were taken. Not merely in form but also in substance.
More recently, the issue of “due regard” arose in relation to admissions criteria where the different duties in relation to “statutory” and “non-statutory” guidance was commented upon. The facts of R (on the application of London Oratory School Governors) v Schools Adjudicator  EWHC 1012 related to admissions criteria that the London Oratory School had imposed in order to address the fact that it was heavily oversubscribed. When deliberating on the need to have regard to Diocesan Guidance, Mr Justice Cobb applied what he referred to as the “conventional approach“ (as set out by Laws LJ in R (Khatun) v Newham London Borough Council  QB 37). He concluded that the governing body’s obligation to have regard to the Diocesan Guidance meant that it needed to take the guidance into account, and to “have and give clear reasons” for any departure from it. Furthermore, these clear reasons must “objectively be proper reasons, or legitimate reasons“. However, to say that the reasons must be “good”, “cogent” or “compelling” would be raising the bar “far higher than is appropriate in this context.” However “compelling justification” would be appropriate for departure from any statutory guidance.
In summary therefore, a number of principles seem to be appropriate.
- The contracting authority should be made aware of its duty to have regard to the guidance, this may mean that any template reports to Members/Portfolio holders include express references to that guidance (and other obligations that decision makers must “have regard to”.
- The consideration of that guidance must take place in a timely manner, that is, before the start of the procurement exercise.
- This duty must be borne in mind when taking appropriate decisions on the content/use of the PQQ.
- There should be an open mind on the merits of the standard published PQQ and its explanatory notes, rather than any favouritism to current contracting authority models.
- If there is any departure from the standard wording it will need to be objectively justified, and because the guidance is statutory then the reasons should be good, cogent or compelling.
- There must be adequate record keeping, evidencing the discussion and showing that the relevant guidance had actually been considered and why any changes to the standard PQQ had been made.
Breach of statutory duty
Another potential public law challenge is breach of statutory duty. A challenge was made recently to a procurement decision using this potential remedy. In Wealden Leisure Limited v Mid-Sussex District Council HC14F01304 (16 July 2014) the facts related to a concession contract and the award fell outside of the scope of the then procurement regulations (SI 2006/05) and the normal remedies. The case was settled on confidential terms and details are scanty but the challenge brought was that the local authority had breached its statutory duties under section 2 of the European Communities Act 1972 when awarding a £120 million leisure services contract. The actual breach related to a breach of the free movement principles in Article 56 of the Treaty on the Functioning of the European Union.
This potential action is interesting as the remedy for beach of statutory duty is damages. Whilst with judicial review the normal remedy would be to set aside the decision. There is also potentially the longer challenge period (six years from breach) than for either judicial review or a challenge under the normal public procurement remedies.
Applying this potential action to Part 4 would however be problematic for the reasons outlined above, it is difficult to see that any actual loss would occur and therefore damages are simply not appropriate, never mind the cost of the potential action and the difficulties in establishing breach of statutory duty.
For the sake of completeness there is of course the potential remedy for the tort of negligence (but difficulties in establishing a duty of care) or of misfeasance in a public office (which has a very high culpability requirement in that the claimant must show that the authority’s conduct was specifically intended to harm the claimant). Other more knowledgeable lawyers than me may be able to construct a claim based on unlawful public law actions causing damages under the Human Rights Act/Convention. However again, looking at the practicalities even if the lawyer could come up with a cause of action is it likely that a claim would be brought by an aggrieved bidder?
Claims under the Treaty: cross border interest
Finally, it is worth considering whether a claimant could still bring a claim for breach of the Treaty on the Functioning of the European Union (TFEU). While the Commission has made it clear that it does not expect below threshold contracts to be subject to cross border interest, especially now that contracts for health, social care and education services have been brought within the scope of the procurement regime, there remains a residual risk of a challenge brought under the TFEU. Such a claim could be brought on grounds such as a breach of transparency or equal treatment by the failure to advertise a contract opportunity. Historically, such claims have had little success as claimants have been unable to show the necessary cross border interest. However, it is not impossible that an authority which did not advertise a below threshold contract could find itself defending such a claim.
In conclusion, while no public authority would seek to deliberately avoid these rules and there is a reputational risk in breaching Part 4, practically speaking it would seem unlikely that many challenges will be brought.