Readers might remember that the 2009 Remedies Directive introduced a new remedy into procurement law – the ability of a bidder to claim for a “declaration of ineffectiveness” in three particular situations. If made by the court, such a declaration brings the contract to an end from the date of the declaration. To date there have only been two declarations of ineffectiveness in the UK.
The ineffectiveness remedy is now set out in Regulation 99 of the Public Contracts Regulations 2015 (“PCR2015”). The “first ground” (of three) on which a declaration may be made is the one which was at issue in this case. This is a situation where a public contract has been awarded without the publication of an OJEU notice, where such a notice was required by the rules. At first glance, the issue seems straightforward– either a notice was published, or it wasn’t?
But what about the situation where an OJEU notice was published setting out the scope and nature of the contract, but the contract ultimately awarded develops sufficiently in scope and nature that it is different from the contract that was originally in the contracting authority’s mind when it advertised it? Can you legitimately say that this contract has been advertised in the OJEU and so the first ground of ineffectiveness is “off the table”? This was the question the court had to consider in this case.
The local authority in Basingstoke sought a partner to redevelop a leisure park. It placed an OJEU notice stating that the negotiated procedure was to be used. The OJEU notice described it as a “Prime Leisure-Led Development Opportunity” aimed at creating a “regional leisure destination” which would put the development “at the forefront of leisure and recreational provision in the area”.
One preferred bidder was chosen who submitted a much bolder proposal to not only double the area of the leisure facilities but also to add extensive retail space. A development agreement was signed in March 2018.
The claimant, AEW, had not itself been a tenderer, but was an operator in the retail development market. This meant (so it said, and the Court agreed) that it was an “economic operator” with an interest in the contract and hence a right to challenge under the PCR 2015.
AEW brought its challenge in September 2018. It claimed damages and a declaration of ineffectiveness on the “first ground”. Although it did not dispute that an OJEU notice had been published and a competition run, it argued that the notice had only contemplated a redevelopment of the leisure facilities and did not cover the construction of a retail park. It argued that the addition of 300,000 ft of retail space was such a significant change to the scope of the contract, so far removed from the original notice, it was as if it had not been advertised at all and the contract had been awarded without a proper transparent competition (i.e. the kind of breach which “first ground” ineffectiveness is intended to remedy).
AEW argued that the change in the nature and scope of the contract was too broad to fit within one of the “safe harbours” of Regulation 72 PCR 2015, and therefore that it was a substantially modified contract at least as far as that regulation was concerned. This assertion was agreed as a preliminary issue by the parties, and the issue for the court distilled down into the question of whether “ground one” ineffectiveness is available as a remedy where an OJEU notice is published but the final contract is different from what was contemplated in the notice.
The Council’s argument
The Council’s argued that it had in fact published an OJEU notice which was properly related to the contract as ultimately signed, although it was common ground that the scope of the contract developed significantly during the course of the procurement process. Given the fact that a notice had been published, how could “first ground” ineffectiveness possibly be available to AEW, said the Council, when regulation 99(2) states “the first ground applies where the contract has been awarded without prior publication of a contract notice in any case in which Part 2 required the prior publication of a contract notice”?
The Court’s judgment
The Court noted that Regulation 99(2) is totally silent on what happens where an OJEU notice is validly published but the final form of contract is significantly different to the contract originally envisaged by that notice. It decided that the Council had published a wholly valid OJEU notice, and noted that it had actually run a procurement process (unlike, for example, in the recent Faraday case, where no competition was run at all).
Considering the draconian nature of the ineffectiveness remedy (which after all, terminates the contract and exposes the contracting authority to liabilities to the contractor as well as to the claimant), the Court decided it was appropriate to take a “mechanistic” view of regulation 99(2) (following the decision in the earlier Alstom case, where the facts were similar). A valid OJEU notice had been published, which meant that a “ground one” declaration of ineffectiveness was not available (although this did not necessarily mean that there were no other breaches – e.g. under regulation 72).
The Court decided that on the facts this OJEU notice was sufficiently connected to the final form of the March 2018 agreement to cover it. The judgment expressly stops short of saying that any OJEU notice will always prevent a successful claim for a declaration of ineffectiveness, saying that the outcome might have been different had the final contract been for, for example, a housing development. The decision here might well have been different had the final agreement borne absolutely no relation at all the procurement advertised initially.
The judgment is good news for contracting authorities; a remedy that was already difficult for tenderers to achieve has arguably been made yet harder. Having said that, contracting authorities should note the limitations of this judgment which is around declarations of ineffectiveness only; it would still be open to claimants to bring other claims, perhaps using the principles in regulation 72 to argue that the duty to run the procurement transparently is breached where eventual contract departs so significantly from the advertisement so that economic operators could not have formed a view that they wished to take part.
AEW Europe LLP v Basingstoke and Deane BC